Correlation Between HEG and Federal Bank

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

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

Diversification Opportunities for HEG and Federal Bank

0.22

Correlation Coefficient

HEG  Federal Bank

Modest diversification

The 3 months correlation between HEG and Federal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and HEG 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 HEG Limited are associated (or correlated) with Federal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Bank has no effect on the direction of HEG i.e., HEG and Federal Bank go up and down completely randomly.

Pair Corralation between HEG and Federal Bank

Assuming the 90 days trading horizon HEG Limited is expected to generate 127.08 times more return on investment than Federal Bank. However, HEG is 127.08 times more volatile than The Federal Bank. It trades about 0.2 of its potential returns per unit of risk. The Federal Bank is currently generating about 0.06 per unit of risk. If you would invest  17,729  in HEG Limited on September 26, 2024 and sell it today you would earn a total of  35,366  from holding HEG Limited or generate 199.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.06%
Values	Daily Returns

HEG Limited  vs.  The Federal Bank

HEG Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Federal Bank

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Federal 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 HEG and Federal Bank

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

The idea behind HEG Limited and The Federal 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .