Correlation Between Merchant Bank and Browns Beach

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

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

Diversification Opportunities for Merchant Bank and Browns Beach

0.41

Correlation Coefficient

Merchant Bank  Browns Beach

Very weak diversification

The 3 months correlation between Merchant and Browns is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merchant Bank of and Browns Beach Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Browns Beach Hotels and Merchant Bank 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 Merchant Bank of are associated (or correlated) with Browns Beach. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Browns Beach Hotels has no effect on the direction of Merchant Bank i.e., Merchant Bank and Browns Beach go up and down completely randomly.

Pair Corralation between Merchant Bank and Browns Beach

Assuming the 90 days trading horizon Merchant Bank is expected to generate 2.42 times less return on investment than Browns Beach. But when comparing it to its historical volatility, Merchant Bank of is 1.07 times less risky than Browns Beach. It trades about 0.1 of its potential returns per unit of risk. Browns Beach Hotels is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,300  in Browns Beach Hotels on September 14, 2024 and sell it today you would earn a total of  620.00  from holding Browns Beach Hotels or generate 47.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Merchant Bank of  vs.  Browns Beach Hotels

Merchant Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merchant Bank of are ranked lower than 7 (%) 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.

Browns Beach Hotels

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Browns Beach Hotels are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Browns Beach sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merchant Bank and Browns Beach

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

The idea behind Merchant Bank of and Browns Beach Hotels 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.