Correlation Between Aozora Bank and First Resource

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

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

Diversification Opportunities for Aozora Bank and First Resource

-0.31

Correlation Coefficient

Aozora Bank  First Resource

Very good diversification

The 3 months correlation between Aozora and First is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank Ltd and First Resource Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Resource Bank and Aozora 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 Aozora Bank Ltd are associated (or correlated) with First Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Resource Bank has no effect on the direction of Aozora Bank i.e., Aozora Bank and First Resource go up and down completely randomly.

Pair Corralation between Aozora Bank and First Resource

Assuming the 90 days horizon Aozora Bank Ltd is expected to under-perform the First Resource. But the pink sheet apears to be less risky and, when comparing its historical volatility, Aozora Bank Ltd is 1.48 times less risky than First Resource. The pink sheet trades about -0.04 of its potential returns per unit of risk. The First Resource Bank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,450  in First Resource Bank on September 29, 2024 and sell it today you would earn a total of  143.00  from holding First Resource Bank or generate 9.86% return on investment over 90 days.

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

Aozora Bank Ltd  vs.  First Resource Bank

Aozora Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aozora Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Aozora Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Resource Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Resource Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First Resource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Aozora Bank and First Resource

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

The idea behind Aozora Bank Ltd and First Resource 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.