Correlation Between HNB Finance and Senkadagala Finance

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

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

Diversification Opportunities for HNB Finance and Senkadagala Finance

0.05

Correlation Coefficient

HNB Finance  Senkadagala Finance

Significant diversification

The 3 months correlation between HNB and Senkadagala is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding HNB Finance and Senkadagala Finance PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senkadagala Finance PLC and HNB Finance 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 HNB Finance are associated (or correlated) with Senkadagala Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senkadagala Finance PLC has no effect on the direction of HNB Finance i.e., HNB Finance and Senkadagala Finance go up and down completely randomly.

Pair Corralation between HNB Finance and Senkadagala Finance

Assuming the 90 days trading horizon HNB Finance is expected to under-perform the Senkadagala Finance. In addition to that, HNB Finance is 4.84 times more volatile than Senkadagala Finance PLC. It trades about -0.08 of its total potential returns per unit of risk. Senkadagala Finance PLC is currently generating about 0.15 per unit of volatility. If you would invest  37,500  in Senkadagala Finance PLC on September 28, 2024 and sell it today you would earn a total of  900.00  from holding Senkadagala Finance PLC or generate 2.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	54.55%
Values	Daily Returns

HNB Finance  vs.  Senkadagala Finance PLC

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNB Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Senkadagala Finance PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Senkadagala Finance PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Senkadagala Finance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HNB Finance and Senkadagala Finance

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

The idea behind HNB Finance and Senkadagala Finance PLC 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.