Correlation Between Hatton National and Merchant Bank

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

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

Diversification Opportunities for Hatton National and Merchant Bank

0.8

Correlation Coefficient

Hatton National  Merchant Bank

Very poor diversification

The 3 months correlation between Hatton and Merchant is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hatton National Bank and Merchant Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchant Bank and Hatton National 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 Hatton National Bank are associated (or correlated) with Merchant Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchant Bank has no effect on the direction of Hatton National i.e., Hatton National and Merchant Bank go up and down completely randomly.

Pair Corralation between Hatton National and Merchant Bank

Assuming the 90 days trading horizon Hatton National Bank is expected to generate 0.59 times more return on investment than Merchant Bank. However, Hatton National Bank is 1.69 times less risky than Merchant Bank. It trades about 0.41 of its potential returns per unit of risk. Merchant Bank of is currently generating about 0.08 per unit of risk. If you would invest  16,400  in Hatton National Bank on September 15, 2024 and sell it today you would earn a total of  8,500  from holding Hatton National Bank or generate 51.83% return on investment over 90 days.

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

Hatton National Bank  vs.  Merchant Bank of

Hatton National Bank

Risk-Adjusted Performance

32 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Hatton National Bank are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hatton National sustained solid returns over the last few months and may actually be approaching a breakup point.

Merchant Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merchant Bank of are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Merchant Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hatton National and Merchant Bank

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

The idea behind Hatton National Bank and Merchant Bank of 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.