Correlation Between MCB Bank and JS Investments

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

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

Diversification Opportunities for MCB Bank and JS Investments

0.7

Correlation Coefficient

MCB Bank  JS Investments

Poor diversification

The 3 months correlation between MCB and JSIL is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and JS Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JS Investments 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 JS Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JS Investments has no effect on the direction of MCB Bank i.e., MCB Bank and JS Investments go up and down completely randomly.

Pair Corralation between MCB Bank and JS Investments

Assuming the 90 days trading horizon MCB Bank is expected to generate 0.69 times more return on investment than JS Investments. However, MCB Bank is 1.46 times less risky than JS Investments. It trades about 0.09 of its potential returns per unit of risk. JS Investments is currently generating about -0.09 per unit of risk. If you would invest  27,405  in MCB Bank on October 8, 2024 and sell it today you would earn a total of  1,136  from holding MCB Bank or generate 4.15% return on investment over 90 days.

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

MCB Bank  vs.  JS Investments

MCB Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 9 (%) 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.

JS Investments

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JS Investments are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JS Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with MCB Bank and JS Investments

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

The idea behind MCB Bank and JS Investments 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.