Correlation Between National Bank and Geely Automobile

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

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

Diversification Opportunities for National Bank and Geely Automobile

0.7

Correlation Coefficient

National Bank  Geely Automobile

Poor diversification

The 3 months correlation between National and Geely is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings and National Bank 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 Bank Holdings are associated (or correlated) with Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of National Bank i.e., National Bank and Geely Automobile go up and down completely randomly.

Pair Corralation between National Bank and Geely Automobile

Assuming the 90 days horizon National Bank is expected to generate 3.35 times less return on investment than Geely Automobile. But when comparing it to its historical volatility, National Bank Holdings is 1.24 times less risky than Geely Automobile. It trades about 0.02 of its potential returns per unit of risk. Geely Automobile Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  90.00  in Geely Automobile Holdings on September 18, 2024 and sell it today you would earn a total of  96.00  from holding Geely Automobile Holdings or generate 106.67% return on investment over 90 days.

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

National Bank Holdings  vs.  Geely Automobile Holdings

National Bank Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Geely Automobile Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Geely Automobile

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

The idea behind National Bank Holdings and Geely Automobile 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.