Correlation Between Habib Bank and MCB Bank

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

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

Diversification Opportunities for Habib Bank and MCB Bank

0.4

Correlation Coefficient

Habib Bank  MCB Bank

Very weak diversification

The 3 months correlation between Habib and MCB is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and Habib 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 Habib Bank are associated (or correlated) with MCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Bank has no effect on the direction of Habib Bank i.e., Habib Bank and MCB Bank go up and down completely randomly.

Pair Corralation between Habib Bank and MCB Bank

Assuming the 90 days trading horizon Habib Bank is expected to under-perform the MCB Bank. In addition to that, Habib Bank is 1.03 times more volatile than MCB Bank. It trades about -0.13 of its total potential returns per unit of risk. MCB Bank is currently generating about 0.04 per unit of volatility. If you would invest  27,493  in MCB Bank on December 2, 2024 and sell it today you would earn a total of  1,123  from holding MCB Bank or generate 4.08% return on investment over 90 days.

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

Habib Bank  vs.  MCB Bank

Habib Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Habib Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

MCB Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, MCB Bank is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Habib Bank and MCB Bank

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

The idea behind Habib Bank and MCB 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.