Correlation Between EFU General and MCB Investment

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

By analyzing existing cross correlation between EFU General Insurance and MCB Investment Manag, you can compare the effects of market volatilities on EFU General and MCB 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 EFU General with a short position of MCB Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of EFU General and MCB Investment.

Diversification Opportunities for EFU General and MCB Investment

0.7

Correlation Coefficient

EFU General  MCB Investment

Poor diversification

The 3 months correlation between EFU and MCB is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding EFU General Insurance and MCB Investment Manag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Investment Manag and EFU General 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 EFU General Insurance are associated (or correlated) with MCB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Investment Manag has no effect on the direction of EFU General i.e., EFU General and MCB Investment go up and down completely randomly.

Pair Corralation between EFU General and MCB Investment

Assuming the 90 days trading horizon EFU General is expected to generate 2.29 times less return on investment than MCB Investment. But when comparing it to its historical volatility, EFU General Insurance is 1.07 times less risky than MCB Investment. It trades about 0.07 of its potential returns per unit of risk. MCB Investment Manag is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,495  in MCB Investment Manag on December 29, 2024 and sell it today you would earn a total of  1,628  from holding MCB Investment Manag or generate 25.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

EFU General Insurance  vs.  MCB Investment Manag

EFU General Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EFU General Insurance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EFU General may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MCB Investment Manag

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Investment Manag are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, MCB Investment disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EFU General and MCB Investment

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

The idea behind EFU General Insurance and MCB Investment Manag 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.