Correlation Between National Capital and PSB Holdings

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

Diversification Opportunities for National Capital and PSB Holdings

-0.25

Correlation Coefficient

National Capital  PSB Holdings

Very good diversification

The 3 months correlation between National and PSB is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank and PSB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSB Holdings 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 PSB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSB Holdings has no effect on the direction of National Capital i.e., National Capital and PSB Holdings go up and down completely randomly.

Pair Corralation between National Capital and PSB Holdings

Given the investment horizon of 90 days National Capital Bank is expected to generate 109.38 times more return on investment than PSB Holdings. However, National Capital is 109.38 times more volatile than PSB Holdings. It trades about 0.34 of its potential returns per unit of risk. PSB Holdings is currently generating about 0.19 per unit of risk. If you would invest  17,575  in National Capital Bank on September 14, 2024 and sell it today you would lose (9,978) from holding National Capital Bank or give up 56.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

National Capital Bank  vs.  PSB Holdings

National Capital Bank

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 25 (%) 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.

PSB Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PSB Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental drivers, PSB Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Capital and PSB Holdings

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

The idea behind National Capital Bank and PSB Holdings 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 Anywhere module to track or share privately all of your investments from the convenience of any device.