Correlation Between MCB Bank and TPL Insurance

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

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

Diversification Opportunities for MCB Bank and TPL Insurance

-0.41

Correlation Coefficient

MCB Bank  TPL Insurance

Very good diversification

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

Pair Corralation between MCB Bank and TPL Insurance

Assuming the 90 days trading horizon MCB Bank is expected to generate 0.46 times more return on investment than TPL Insurance. However, MCB Bank is 2.18 times less risky than TPL Insurance. It trades about 0.02 of its potential returns per unit of risk. TPL Insurance is currently generating about -0.13 per unit of risk. If you would invest  27,841  in MCB Bank on December 28, 2024 and sell it today you would earn a total of  225.00  from holding MCB Bank or generate 0.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

MCB Bank  vs.  TPL Insurance

MCB Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, MCB Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

TPL Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days TPL Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with MCB Bank and TPL Insurance

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

The idea behind MCB Bank and TPL Insurance 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.