Correlation Between National Capital and Farmers

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

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

Diversification Opportunities for National Capital and Farmers

0.12

Correlation Coefficient

National Capital  Farmers

Average diversification

The 3 months correlation between National and Farmers is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank and Farmers and Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers and Merchants and National Capital 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 Capital Bank are associated (or correlated) with Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers and Merchants has no effect on the direction of National Capital i.e., National Capital and Farmers go up and down completely randomly.

Pair Corralation between National Capital and Farmers

Given the investment horizon of 90 days National Capital is expected to generate 1.43 times less return on investment than Farmers. In addition to that, National Capital is 2.16 times more volatile than Farmers and Merchants. It trades about 0.09 of its total potential returns per unit of risk. Farmers and Merchants is currently generating about 0.28 per unit of volatility. If you would invest  1,383  in Farmers and Merchants on September 27, 2024 and sell it today you would earn a total of  417.00  from holding Farmers and Merchants or generate 30.15% return on investment over 90 days.

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

National Capital Bank  vs.  Farmers and Merchants

National Capital Bank

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Farmers and Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers and Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Farmers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Capital and Farmers

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

The idea behind National Capital Bank and Farmers and Merchants 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.