Correlation Between NIGERIAN BREWERIES and UNITED BANK

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

By analyzing existing cross correlation between NIGERIAN BREWERIES PLC and UNITED BANK FOR, you can compare the effects of market volatilities on NIGERIAN BREWERIES and UNITED BANK 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 NIGERIAN BREWERIES with a short position of UNITED BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIGERIAN BREWERIES and UNITED BANK.

Diversification Opportunities for NIGERIAN BREWERIES and UNITED BANK

0.27

Correlation Coefficient

NIGERIAN BREWERIES  UNITED BANK

Modest diversification

The 3 months correlation between NIGERIAN and UNITED is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NIGERIAN BREWERIES PLC and UNITED BANK FOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED BANK FOR and NIGERIAN BREWERIES 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 NIGERIAN BREWERIES PLC are associated (or correlated) with UNITED BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED BANK FOR has no effect on the direction of NIGERIAN BREWERIES i.e., NIGERIAN BREWERIES and UNITED BANK go up and down completely randomly.

Pair Corralation between NIGERIAN BREWERIES and UNITED BANK

Assuming the 90 days trading horizon NIGERIAN BREWERIES PLC is expected to under-perform the UNITED BANK. But the stock apears to be less risky and, when comparing its historical volatility, NIGERIAN BREWERIES PLC is 1.16 times less risky than UNITED BANK. The stock trades about -0.01 of its potential returns per unit of risk. The UNITED BANK FOR is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  805.00  in UNITED BANK FOR on October 10, 2024 and sell it today you would earn a total of  2,600  from holding UNITED BANK FOR or generate 322.98% return on investment over 90 days.

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

NIGERIAN BREWERIES PLC  vs.  UNITED BANK FOR

NIGERIAN BREWERIES PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NIGERIAN BREWERIES PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NIGERIAN BREWERIES may actually be approaching a critical reversion point that can send shares even higher in February 2025.

UNITED BANK FOR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED BANK FOR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, UNITED BANK unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIGERIAN BREWERIES and UNITED BANK

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

The idea behind NIGERIAN BREWERIES PLC and UNITED BANK FOR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.