Correlation Between Bank of Ireland and Donegal Investment

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

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

Diversification Opportunities for Bank of Ireland and Donegal Investment

0.28

Correlation Coefficient

Bank of Ireland  Donegal Investment

Modest diversification

The 3 months correlation between Bank and Donegal is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Ireland and Donegal Investment Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donegal Investment and Bank of Ireland 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 Ireland are associated (or correlated) with Donegal Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donegal Investment has no effect on the direction of Bank of Ireland i.e., Bank of Ireland and Donegal Investment go up and down completely randomly.

Pair Corralation between Bank of Ireland and Donegal Investment

Assuming the 90 days trading horizon Bank of Ireland is expected to generate 37.2 times less return on investment than Donegal Investment. But when comparing it to its historical volatility, Bank of Ireland is 58.66 times less risky than Donegal Investment. It trades about 0.18 of its potential returns per unit of risk. Donegal Investment Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,660  in Donegal Investment Group on December 30, 2024 and sell it today you would lose (10.00) from holding Donegal Investment Group or give up 0.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Bank of Ireland  vs.  Donegal Investment Group

Bank of Ireland

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Ireland are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of Ireland reported solid returns over the last few months and may actually be approaching a breakup point.

Donegal Investment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Donegal Investment Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Donegal Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Ireland and Donegal Investment

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

The idea behind Bank of Ireland and Donegal Investment Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.