Correlation Between Mega Financial and First Financial

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

By analyzing existing cross correlation between Mega Financial Holding and First Financial Holding, you can compare the effects of market volatilities on Mega Financial and First Financial 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 Mega Financial with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Financial and First Financial.

Diversification Opportunities for Mega Financial and First Financial

0.41

Correlation Coefficient

Mega Financial  First Financial

Very weak diversification

The 3 months correlation between Mega and First is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Mega Financial Holding and First Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Holding and Mega 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 Mega Financial Holding are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Holding has no effect on the direction of Mega Financial i.e., Mega Financial and First Financial go up and down completely randomly.

Pair Corralation between Mega Financial and First Financial

Assuming the 90 days trading horizon Mega Financial is expected to generate 2.27 times less return on investment than First Financial. But when comparing it to its historical volatility, Mega Financial Holding is 1.12 times less risky than First Financial. It trades about 0.02 of its potential returns per unit of risk. First Financial Holding is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,730  in First Financial Holding on December 1, 2024 and sell it today you would earn a total of  35.00  from holding First Financial Holding or generate 1.28% return on investment over 90 days.

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

Mega Financial Holding  vs.  First Financial Holding

Mega Financial Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mega Financial Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Financial Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, First Financial 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 Mega Financial and First Financial

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

The idea behind Mega Financial Holding and First Financial Holding 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.