Correlation Between National Development and Arpico Insurance

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

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

Diversification Opportunities for National Development and Arpico Insurance

0.7

Correlation Coefficient

National Development  Arpico Insurance

Poor diversification

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

Pair Corralation between National Development and Arpico Insurance

Assuming the 90 days trading horizon National Development Bank is expected to generate 0.68 times more return on investment than Arpico Insurance. However, National Development Bank is 1.47 times less risky than Arpico Insurance. It trades about 0.23 of its potential returns per unit of risk. Arpico Insurance is currently generating about 0.06 per unit of risk. If you would invest  8,530  in National Development Bank on December 4, 2024 and sell it today you would earn a total of  3,220  from holding National Development Bank or generate 37.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.47%
Values	Daily Returns

National Development Bank  vs.  Arpico Insurance

National Development Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, National Development sustained solid returns over the last few months and may actually be approaching a breakup point.

Arpico Insurance

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arpico Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Arpico Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Development and Arpico Insurance

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

The idea behind National Development Bank and Arpico Insurance 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 Valuation module to check real value of public entities based on technical and fundamental data.