Correlation Between Bank of Maharashtra and Federal Bank

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

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

Diversification Opportunities for Bank of Maharashtra and Federal Bank

0.35

Correlation Coefficient

Bank of Maharashtra  Federal Bank

Weak diversification

The 3 months correlation between Bank and Federal is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Maharashtra and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank and Bank of Maharashtra 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 Bank of Maharashtra 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 Bank of Maharashtra i.e., Bank of Maharashtra and Federal Bank go up and down completely randomly.

Pair Corralation between Bank of Maharashtra and Federal Bank

Assuming the 90 days trading horizon Bank of Maharashtra is expected to under-perform the Federal Bank. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Maharashtra is 1.11 times less risky than Federal Bank. The stock trades about -0.35 of its potential returns per unit of risk. The The Federal Bank is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  21,544  in The Federal Bank on October 5, 2024 and sell it today you would lose (930.00) from holding The Federal Bank or give up 4.32% of portfolio value over 90 days.

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

Bank of Maharashtra  vs.  The Federal Bank

Bank of Maharashtra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Maharashtra has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Bank of Maharashtra is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Federal Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Federal Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, Federal Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Maharashtra and Federal Bank

The main advantage of trading using opposite Bank of Maharashtra and Federal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Maharashtra 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 Bank of Maharashtra 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.