Correlation Between National Australia and Bravura Solutions

Can any of the company-specific risk be diversified away by investing in both National Australia and Bravura Solutions 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 National Australia and Bravura Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for National Australia and Bravura Solutions

0.66

Correlation Coefficient

National Australia  Bravura Solutions

Poor diversification

The 3 months correlation between National and Bravura is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding National Australia Bank and Bravura Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bravura Solutions and National Australia 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 National Australia Bank are associated (or correlated) with Bravura Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bravura Solutions has no effect on the direction of National Australia i.e., National Australia and Bravura Solutions go up and down completely randomly.

Pair Corralation between National Australia and Bravura Solutions

Assuming the 90 days trading horizon National Australia is expected to generate 70.58 times less return on investment than Bravura Solutions. But when comparing it to its historical volatility, National Australia Bank is 21.35 times less risky than Bravura Solutions. It trades about 0.1 of its potential returns per unit of risk. Bravura Solutions is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  151.00  in Bravura Solutions on September 23, 2024 and sell it today you would earn a total of  57.00  from holding Bravura Solutions or generate 37.75% return on investment over 90 days.

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

National Australia Bank  vs.  Bravura Solutions

National Australia Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Australia Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, National Australia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bravura Solutions

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bravura Solutions are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bravura Solutions unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Australia and Bravura Solutions

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

The idea behind National Australia Bank and Bravura Solutions 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.