Correlation Between Chiba Bank and Freedom Bank

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

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

Diversification Opportunities for Chiba Bank and Freedom Bank

0.5

Correlation Coefficient

Chiba Bank  Freedom Bank

Very weak diversification

The 3 months correlation between Chiba and Freedom is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Chiba Bank Ltd and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank and Chiba 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 Chiba Bank Ltd are associated (or correlated) with Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of Chiba Bank i.e., Chiba Bank and Freedom Bank go up and down completely randomly.

Pair Corralation between Chiba Bank and Freedom Bank

Assuming the 90 days horizon Chiba Bank is expected to generate 4.14 times less return on investment than Freedom Bank. But when comparing it to its historical volatility, Chiba Bank Ltd is 1.41 times less risky than Freedom Bank. It trades about 0.03 of its potential returns per unit of risk. Freedom Bank of is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  995.00  in Freedom Bank of on September 21, 2024 and sell it today you would earn a total of  80.00  from holding Freedom Bank of or generate 8.04% return on investment over 90 days.

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

Chiba Bank Ltd  vs.  Freedom Bank of

Chiba Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Chiba Bank Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Chiba Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Freedom Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Chiba Bank and Freedom Bank

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

The idea behind Chiba Bank Ltd and Freedom Bank of 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.