Correlation Between Federal Bank and Alkali Metals

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

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

Diversification Opportunities for Federal Bank and Alkali Metals

0.03

Correlation Coefficient

Federal Bank  Alkali Metals

Significant diversification

The 3 months correlation between Federal and Alkali is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding The Federal Bank and Alkali Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkali Metals Limited and Federal 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 The Federal Bank are associated (or correlated) with Alkali Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkali Metals Limited has no effect on the direction of Federal Bank i.e., Federal Bank and Alkali Metals go up and down completely randomly.

Pair Corralation between Federal Bank and Alkali Metals

Assuming the 90 days trading horizon The Federal Bank is expected to generate 0.9 times more return on investment than Alkali Metals. However, The Federal Bank is 1.11 times less risky than Alkali Metals. It trades about 0.09 of its potential returns per unit of risk. Alkali Metals Limited is currently generating about 0.01 per unit of risk. If you would invest  18,776  in The Federal Bank on October 8, 2024 and sell it today you would earn a total of  1,749  from holding The Federal Bank or generate 9.32% return on investment over 90 days.

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

The Federal Bank  vs.  Alkali Metals Limited

Federal Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Federal Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alkali Metals Limited

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Federal Bank and Alkali Metals

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

The idea behind The Federal Bank and Alkali Metals Limited 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..