Correlation Between NBS BANK and STANDARD BANK

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

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

Diversification Opportunities for NBS BANK and STANDARD BANK

0.8

Correlation Coefficient

NBS BANK  STANDARD BANK

Very poor diversification

The 3 months correlation between NBS and STANDARD is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NBS BANK LIMITED and STANDARD BANK LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STANDARD BANK LIMITED and NBS 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 NBS BANK LIMITED are associated (or correlated) with STANDARD BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STANDARD BANK LIMITED has no effect on the direction of NBS BANK i.e., NBS BANK and STANDARD BANK go up and down completely randomly.

Pair Corralation between NBS BANK and STANDARD BANK

Assuming the 90 days trading horizon NBS BANK is expected to generate 14.45 times less return on investment than STANDARD BANK. But when comparing it to its historical volatility, NBS BANK LIMITED is 11.72 times less risky than STANDARD BANK. It trades about 0.16 of its potential returns per unit of risk. STANDARD BANK LIMITED is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  485,001  in STANDARD BANK LIMITED on September 5, 2024 and sell it today you would earn a total of  115,012  from holding STANDARD BANK LIMITED or generate 23.71% return on investment over 90 days.

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

NBS BANK LIMITED  vs.  STANDARD BANK LIMITED

NBS BANK LIMITED

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NBS BANK LIMITED are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, NBS BANK is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

STANDARD BANK LIMITED

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in STANDARD BANK LIMITED are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, STANDARD BANK reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NBS BANK and STANDARD BANK

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

The idea behind NBS BANK LIMITED and STANDARD BANK LIMITED 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.