Correlation Between MCB GROUP and AFRICAN DOMESTIC

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

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

Diversification Opportunities for MCB GROUP and AFRICAN DOMESTIC

-0.48

Correlation Coefficient

MCB GROUP  AFRICAN DOMESTIC

Very good diversification

The 3 months correlation between MCB and AFRICAN is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding MCB GROUP LIMITED and AFRICAN DOMESTIC BOND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFRICAN DOMESTIC BOND and MCB GROUP 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 GROUP LIMITED are associated (or correlated) with AFRICAN DOMESTIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFRICAN DOMESTIC BOND has no effect on the direction of MCB GROUP i.e., MCB GROUP and AFRICAN DOMESTIC go up and down completely randomly.

Pair Corralation between MCB GROUP and AFRICAN DOMESTIC

Assuming the 90 days trading horizon MCB GROUP LIMITED is expected to generate 1.57 times more return on investment than AFRICAN DOMESTIC. However, MCB GROUP is 1.57 times more volatile than AFRICAN DOMESTIC BOND. It trades about 0.13 of its potential returns per unit of risk. AFRICAN DOMESTIC BOND is currently generating about 0.06 per unit of risk. If you would invest  38,000  in MCB GROUP LIMITED on September 26, 2024 and sell it today you would earn a total of  6,325  from holding MCB GROUP LIMITED or generate 16.64% return on investment over 90 days.

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

MCB GROUP LIMITED  vs.  AFRICAN DOMESTIC BOND

MCB GROUP LIMITED

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MCB GROUP LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MCB GROUP is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

AFRICAN DOMESTIC BOND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFRICAN DOMESTIC BOND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, AFRICAN DOMESTIC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MCB GROUP and AFRICAN DOMESTIC

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

The idea behind MCB GROUP LIMITED and AFRICAN DOMESTIC BOND 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.