Correlation Between Budimex SA and MBank SA

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

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

Diversification Opportunities for Budimex SA and MBank SA

0.53

Correlation Coefficient

Budimex SA  MBank SA

Very weak diversification

The 3 months correlation between Budimex and MBank is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Budimex SA and mBank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on mBank SA and Budimex SA 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 Budimex SA are associated (or correlated) with MBank SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of mBank SA has no effect on the direction of Budimex SA i.e., Budimex SA and MBank SA go up and down completely randomly.

Pair Corralation between Budimex SA and MBank SA

Assuming the 90 days trading horizon Budimex SA is expected to generate 1.48 times less return on investment than MBank SA. In addition to that, Budimex SA is 1.2 times more volatile than mBank SA. It trades about 0.19 of its total potential returns per unit of risk. mBank SA is currently generating about 0.34 per unit of volatility. If you would invest  55,360  in mBank SA on December 21, 2024 and sell it today you would earn a total of  26,540  from holding mBank SA or generate 47.94% return on investment over 90 days.

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

Budimex SA  vs.  mBank SA

Budimex SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Budimex SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Budimex SA reported solid returns over the last few months and may actually be approaching a breakup point.

mBank SA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in mBank SA are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, MBank SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Budimex SA and MBank SA

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

The idea behind Budimex SA and mBank SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.