Correlation Between CUSTODIAN INVESTMENT and STERLING FINANCIAL

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

By analyzing existing cross correlation between CUSTODIAN INVESTMENT PLC and STERLING FINANCIAL HOLDINGS, you can compare the effects of market volatilities on CUSTODIAN INVESTMENT and STERLING FINANCIAL 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 CUSTODIAN INVESTMENT with a short position of STERLING FINANCIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of CUSTODIAN INVESTMENT and STERLING FINANCIAL.

Diversification Opportunities for CUSTODIAN INVESTMENT and STERLING FINANCIAL

0.89

Correlation Coefficient

CUSTODIAN INVESTMENT  STERLING FINANCIAL

Very poor diversification

The 3 months correlation between CUSTODIAN and STERLING is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding CUSTODIAN INVESTMENT PLC and STERLING FINANCIAL HOLDINGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STERLING FINANCIAL and CUSTODIAN INVESTMENT 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 CUSTODIAN INVESTMENT PLC are associated (or correlated) with STERLING FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STERLING FINANCIAL has no effect on the direction of CUSTODIAN INVESTMENT i.e., CUSTODIAN INVESTMENT and STERLING FINANCIAL go up and down completely randomly.

Pair Corralation between CUSTODIAN INVESTMENT and STERLING FINANCIAL

Assuming the 90 days trading horizon CUSTODIAN INVESTMENT PLC is expected to generate 1.01 times more return on investment than STERLING FINANCIAL. However, CUSTODIAN INVESTMENT is 1.01 times more volatile than STERLING FINANCIAL HOLDINGS. It trades about 0.23 of its potential returns per unit of risk. STERLING FINANCIAL HOLDINGS is currently generating about 0.09 per unit of risk. If you would invest  1,200  in CUSTODIAN INVESTMENT PLC on October 25, 2024 and sell it today you would earn a total of  650.00  from holding CUSTODIAN INVESTMENT PLC or generate 54.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.39%
Values	Daily Returns

CUSTODIAN INVESTMENT PLC  vs.  STERLING FINANCIAL HOLDINGS

CUSTODIAN INVESTMENT PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CUSTODIAN INVESTMENT PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, CUSTODIAN INVESTMENT demonstrated solid returns over the last few months and may actually be approaching a breakup point.

STERLING FINANCIAL

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in STERLING FINANCIAL HOLDINGS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, STERLING FINANCIAL displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CUSTODIAN INVESTMENT and STERLING FINANCIAL

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

The idea behind CUSTODIAN INVESTMENT PLC and STERLING FINANCIAL HOLDINGS 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 Transaction History module to view history of all your transactions and understand their impact on performance.