Correlation Between Far Eastern and Kings Town

Can any of the company-specific risk be diversified away by investing in both Far Eastern and Kings Town 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 Far Eastern and Kings Town into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Far Eastern International and Kings Town Bank, you can compare the effects of market volatilities on Far Eastern and Kings Town 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 Far Eastern with a short position of Kings Town. Check out your portfolio center. Please also check ongoing floating volatility patterns of Far Eastern and Kings Town.

Diversification Opportunities for Far Eastern and Kings Town

-0.04

Correlation Coefficient

Far Eastern  Kings Town

Good diversification

The 3 months correlation between Far and Kings is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Far Eastern International and Kings Town Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kings Town Bank and Far Eastern 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 Far Eastern International are associated (or correlated) with Kings Town. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kings Town Bank has no effect on the direction of Far Eastern i.e., Far Eastern and Kings Town go up and down completely randomly.

Pair Corralation between Far Eastern and Kings Town

Assuming the 90 days trading horizon Far Eastern International is expected to under-perform the Kings Town. But the stock apears to be less risky and, when comparing its historical volatility, Far Eastern International is 2.02 times less risky than Kings Town. The stock trades about -0.14 of its potential returns per unit of risk. The Kings Town Bank is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4,855  in Kings Town Bank on October 11, 2024 and sell it today you would earn a total of  245.00  from holding Kings Town Bank or generate 5.05% return on investment over 90 days.

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

Far Eastern International  vs.  Kings Town Bank

Far Eastern International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Far Eastern International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Far Eastern is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Kings Town Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kings Town Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Kings Town is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Far Eastern and Kings Town

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

The idea behind Far Eastern International and Kings Town Bank 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..