Correlation Between MCB Bank and Dost Steels

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

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

Diversification Opportunities for MCB Bank and Dost Steels

0.4

Correlation Coefficient

MCB Bank  Dost Steels

Very weak diversification

The 3 months correlation between MCB and Dost is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and Dost Steels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dost Steels and MCB 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 MCB Bank are associated (or correlated) with Dost Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dost Steels has no effect on the direction of MCB Bank i.e., MCB Bank and Dost Steels go up and down completely randomly.

Pair Corralation between MCB Bank and Dost Steels

Assuming the 90 days trading horizon MCB Bank is expected to generate 1.43 times less return on investment than Dost Steels. But when comparing it to its historical volatility, MCB Bank is 1.24 times less risky than Dost Steels. It trades about 0.1 of its potential returns per unit of risk. Dost Steels is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  560.00  in Dost Steels on October 10, 2024 and sell it today you would earn a total of  121.00  from holding Dost Steels or generate 21.61% return on investment over 90 days.

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

MCB Bank  vs.  Dost Steels

MCB Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, MCB Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Dost Steels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dost Steels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dost Steels reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MCB Bank and Dost Steels

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

The idea behind MCB Bank and Dost Steels 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.