Correlation Between BNK Financial and NOVATECH

Can any of the company-specific risk be diversified away by investing in both BNK Financial and NOVATECH at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BNK Financial and NOVATECH into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BNK Financial Group and NOVATECH Co, you can compare the effects of market volatilities on BNK Financial and NOVATECH and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BNK Financial with a short position of NOVATECH. Check out your portfolio center. Please also check ongoing floating volatility patterns of BNK Financial and NOVATECH.

Diversification Opportunities for BNK Financial and NOVATECH

0.65

Correlation Coefficient

BNK Financial  NOVATECH

Poor diversification

The 3 months correlation between BNK and NOVATECH is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BNK Financial Group and NOVATECH Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVATECH and BNK Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BNK Financial Group are associated (or correlated) with NOVATECH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVATECH has no effect on the direction of BNK Financial i.e., BNK Financial and NOVATECH go up and down completely randomly.

Pair Corralation between BNK Financial and NOVATECH

Assuming the 90 days trading horizon BNK Financial is expected to generate 2.66 times less return on investment than NOVATECH. But when comparing it to its historical volatility, BNK Financial Group is 2.29 times less risky than NOVATECH. It trades about 0.13 of its potential returns per unit of risk. NOVATECH Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,170,000  in NOVATECH Co on October 22, 2024 and sell it today you would earn a total of  580,000  from holding NOVATECH Co or generate 49.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BNK Financial Group  vs.  NOVATECH Co

BNK Financial Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BNK Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BNK Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

NOVATECH

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NOVATECH Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NOVATECH sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BNK Financial and NOVATECH

The main advantage of trading using opposite BNK Financial and NOVATECH positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BNK Financial position performs unexpectedly, NOVATECH can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NOVATECH will offset losses from the drop in NOVATECH's long position.

The idea behind BNK Financial Group and NOVATECH Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.