Correlation Between Merchant Bank and E M

Can any of the company-specific risk be diversified away by investing in both Merchant Bank and E M 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 E M 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 E M L, you can compare the effects of market volatilities on Merchant Bank and E M 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 E M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merchant Bank and E M.

Diversification Opportunities for Merchant Bank and E M

0.65

Correlation Coefficient

Merchant Bank  E M

Poor diversification

The 3 months correlation between Merchant and EMLN0000 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merchant Bank of and E M L in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E M L 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 E M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E M L has no effect on the direction of Merchant Bank i.e., Merchant Bank and E M go up and down completely randomly.

Pair Corralation between Merchant Bank and E M

Assuming the 90 days trading horizon Merchant Bank of is expected to generate 0.63 times more return on investment than E M. However, Merchant Bank of is 1.6 times less risky than E M. It trades about 0.41 of its potential returns per unit of risk. E M L is currently generating about 0.06 per unit of risk. If you would invest  590.00  in Merchant Bank of on October 23, 2024 and sell it today you would earn a total of  100.00  from holding Merchant Bank of or generate 16.95% return on investment over 90 days.

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

Merchant Bank of  vs.  E M L

Merchant Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Merchant Bank of are ranked lower than 13 (%) 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.

E M L

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Merchant Bank and E M

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

The idea behind Merchant Bank of and E M L 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.