Correlation Between Preferred Bank and Stewart Information

Can any of the company-specific risk be diversified away by investing in both Preferred Bank and Stewart Information 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 Preferred Bank and Stewart Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Preferred Bank and Stewart Information Services, you can compare the effects of market volatilities on Preferred Bank and Stewart Information 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 Preferred Bank with a short position of Stewart Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preferred Bank and Stewart Information.

Diversification Opportunities for Preferred Bank and Stewart Information

0.71

Correlation Coefficient

Preferred Bank  Stewart Information

Poor diversification

The 3 months correlation between Preferred and Stewart is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Bank and Stewart Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stewart Information and Preferred Bank 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 Preferred Bank are associated (or correlated) with Stewart Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stewart Information has no effect on the direction of Preferred Bank i.e., Preferred Bank and Stewart Information go up and down completely randomly.

Pair Corralation between Preferred Bank and Stewart Information

Assuming the 90 days horizon Preferred Bank is expected to generate 1.32 times more return on investment than Stewart Information. However, Preferred Bank is 1.32 times more volatile than Stewart Information Services. It trades about 0.1 of its potential returns per unit of risk. Stewart Information Services is currently generating about 0.02 per unit of risk. If you would invest  7,250  in Preferred Bank on October 8, 2024 and sell it today you would earn a total of  1,050  from holding Preferred Bank or generate 14.48% return on investment over 90 days.

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

Preferred Bank  vs.  Stewart Information Services

Preferred Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Preferred Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Stewart Information

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stewart Information Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Stewart Information is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Preferred Bank and Stewart Information

The main advantage of trading using opposite Preferred Bank and Stewart Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Preferred Bank position performs unexpectedly, Stewart Information 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 Stewart Information will offset losses from the drop in Stewart Information's long position.

The idea behind Preferred Bank and Stewart Information Services 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 Global Correlations module to find global opportunities by holding instruments from different markets.