Correlation Between Associated British and Bank of Ireland

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

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

Diversification Opportunities for Associated British and Bank of Ireland

-0.38

Correlation Coefficient

Associated British  Bank of Ireland

Very good diversification

The 3 months correlation between Associated and Bank is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Bank of Ireland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Ireland and Associated British 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 Associated British Foods are associated (or correlated) with Bank of Ireland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Ireland has no effect on the direction of Associated British i.e., Associated British and Bank of Ireland go up and down completely randomly.

Pair Corralation between Associated British and Bank of Ireland

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Bank of Ireland. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.24 times less risky than Bank of Ireland. The stock trades about -0.29 of its potential returns per unit of risk. The Bank of Ireland is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  866.00  in Bank of Ireland on October 26, 2024 and sell it today you would earn a total of  75.00  from holding Bank of Ireland or generate 8.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Associated British Foods  vs.  Bank of Ireland

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Bank of Ireland

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Ireland are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Bank of Ireland may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Associated British and Bank of Ireland

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

The idea behind Associated British Foods and Bank of Ireland 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.