Correlation Between Bank of Georgia Group PLC and Bellway PLC

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

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

Diversification Opportunities for Bank of Georgia Group PLC and Bellway PLC

0.03

Correlation Coefficient

Bank of Georgia Group PLC  Bellway PLC

Significant diversification

The 3 months correlation between Bank and Bellway is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Georgia and Bellway PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bellway PLC and Bank of Georgia Group PLC 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 Bank of Georgia are associated (or correlated) with Bellway PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bellway PLC has no effect on the direction of Bank of Georgia Group PLC i.e., Bank of Georgia Group PLC and Bellway PLC go up and down completely randomly.

Pair Corralation between Bank of Georgia Group PLC and Bellway PLC

Assuming the 90 days trading horizon Bank of Georgia Group PLC is expected to generate 59.68 times less return on investment than Bellway PLC. But when comparing it to its historical volatility, Bank of Georgia is 71.18 times less risky than Bellway PLC. It trades about 0.14 of its potential returns per unit of risk. Bellway PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  249,400  in Bellway PLC on December 4, 2024 and sell it today you would lose (16,800) from holding Bellway PLC or give up 6.74% of portfolio value over 90 days.

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

Bank of Georgia  vs.  Bellway PLC

Bank of Georgia Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Georgia are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bank of Georgia Group PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bellway PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bellway PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Bellway PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Georgia Group PLC and Bellway PLC

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

The idea behind Bank of Georgia and Bellway PLC 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.