Correlation Between E M and Amana Bank

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

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

Diversification Opportunities for E M and Amana Bank

0.66

Correlation Coefficient

E M  Amana Bank

Poor diversification

The 3 months correlation between EMLN0000 and Amana is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding E M L and Amana Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amana Bank and E M 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 E M L are associated (or correlated) with Amana Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amana Bank has no effect on the direction of E M i.e., E M and Amana Bank go up and down completely randomly.

Pair Corralation between E M and Amana Bank

Assuming the 90 days trading horizon E M L is expected to generate 3.23 times more return on investment than Amana Bank. However, E M is 3.23 times more volatile than Amana Bank. It trades about 0.08 of its potential returns per unit of risk. Amana Bank is currently generating about 0.19 per unit of risk. If you would invest  350.00  in E M L on October 20, 2024 and sell it today you would earn a total of  50.00  from holding E M L or generate 14.29% return on investment over 90 days.

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

E M L  vs.  Amana Bank

E M L

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in E M L are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, E M sustained solid returns over the last few months and may actually be approaching a breakup point.

Amana Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amana Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amana Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E M and Amana Bank

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

The idea behind E M L and Amana Bank 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.