Correlation Between Federal Bank and CSB Bank

Can any of the company-specific risk be diversified away by investing in both Federal Bank and CSB 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 Federal Bank and CSB Bank 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 CSB Bank Limited, you can compare the effects of market volatilities on Federal Bank and CSB 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 Federal Bank with a short position of CSB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Bank and CSB Bank.

Diversification Opportunities for Federal Bank and CSB Bank

-0.03

Correlation Coefficient

Federal Bank  CSB Bank

Good diversification

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

Pair Corralation between Federal Bank and CSB Bank

Assuming the 90 days trading horizon The Federal Bank is expected to generate 1.25 times more return on investment than CSB Bank. However, Federal Bank is 1.25 times more volatile than CSB Bank Limited. It trades about 0.05 of its potential returns per unit of risk. CSB Bank Limited is currently generating about -0.01 per unit of risk. If you would invest  18,568  in The Federal Bank on October 10, 2024 and sell it today you would earn a total of  982.00  from holding The Federal Bank or generate 5.29% return on investment over 90 days.

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

The Federal Bank  vs.  CSB Bank Limited

Federal Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, Federal Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CSB Bank Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSB Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, CSB Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Federal Bank and CSB Bank

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

The idea behind The Federal Bank and CSB Bank 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 Stocks Directory module to find actively traded stocks across global markets.