Correlation Between National Capital and Magyar Bancorp

Can any of the company-specific risk be diversified away by investing in both National Capital and Magyar Bancorp 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 Magyar Bancorp 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 Magyar Bancorp, you can compare the effects of market volatilities on National Capital and Magyar Bancorp 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 Magyar Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Capital and Magyar Bancorp.

Diversification Opportunities for National Capital and Magyar Bancorp

-0.36

Correlation Coefficient

National Capital  Magyar Bancorp

Very good diversification

The 3 months correlation between National and Magyar is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank and Magyar Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magyar Bancorp 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 Magyar Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magyar Bancorp has no effect on the direction of National Capital i.e., National Capital and Magyar Bancorp go up and down completely randomly.

Pair Corralation between National Capital and Magyar Bancorp

Given the investment horizon of 90 days National Capital Bank is expected to generate 69.5 times more return on investment than Magyar Bancorp. However, National Capital is 69.5 times more volatile than Magyar Bancorp. It trades about 0.28 of its potential returns per unit of risk. Magyar Bancorp is currently generating about 0.16 per unit of risk. If you would invest  4,570  in National Capital Bank on October 8, 2024 and sell it today you would earn a total of  1,730  from holding National Capital Bank or generate 37.86% return on investment over 90 days.

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

National Capital Bank  vs.  Magyar Bancorp

National Capital Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Magyar Bancorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Magyar Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Capital and Magyar Bancorp

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

The idea behind National Capital Bank and Magyar Bancorp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.