Correlation Between Lucky Cement and MCB Bank

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

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

Diversification Opportunities for Lucky Cement and MCB Bank

0.42

Correlation Coefficient

Lucky Cement  MCB Bank

Very weak diversification

The 3 months correlation between Lucky and MCB is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Lucky Cement and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and Lucky Cement 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 Lucky Cement 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 Lucky Cement i.e., Lucky Cement and MCB Bank go up and down completely randomly.

Pair Corralation between Lucky Cement and MCB Bank

Assuming the 90 days trading horizon Lucky Cement is expected to generate 2.18 times more return on investment than MCB Bank. However, Lucky Cement is 2.18 times more volatile than MCB Bank. It trades about 0.22 of its potential returns per unit of risk. MCB Bank is currently generating about 0.02 per unit of risk. If you would invest  109,895  in Lucky Cement on December 29, 2024 and sell it today you would earn a total of  39,765  from holding Lucky Cement or generate 36.18% return on investment over 90 days.

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

Lucky Cement  vs.  MCB Bank

Lucky Cement

Risk-Adjusted Performance

Solid

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

MCB Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 1 (%) 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 current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Lucky Cement and MCB Bank

The main advantage of trading using opposite Lucky Cement and MCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lucky Cement 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 Lucky Cement 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..