Correlation Between Habib Bank and Soneri Bank

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

Diversification Opportunities for Habib Bank and Soneri Bank

0.87

Correlation Coefficient

Habib Bank  Soneri Bank

Very poor diversification

The 3 months correlation between Habib and Soneri is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and Soneri Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soneri 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 Soneri Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soneri Bank has no effect on the direction of Habib Bank i.e., Habib Bank and Soneri Bank go up and down completely randomly.

Pair Corralation between Habib Bank and Soneri Bank

Assuming the 90 days trading horizon Habib Bank is expected to generate 1.38 times less return on investment than Soneri Bank. But when comparing it to its historical volatility, Habib Bank is 1.01 times less risky than Soneri Bank. It trades about 0.11 of its potential returns per unit of risk. Soneri Bank is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,107  in Soneri Bank on September 29, 2024 and sell it today you would earn a total of  553.00  from holding Soneri Bank or generate 49.95% return on investment over 90 days.

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

Habib Bank  vs.  Soneri Bank

Habib Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Habib Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Habib Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Soneri Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Soneri Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Soneri Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Habib Bank and Soneri Bank

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

The idea behind Habib Bank and Soneri 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.