Correlation Between National Development and Commercial Credit

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

Diversification Opportunities for National Development and Commercial Credit

0.89

Correlation Coefficient

National Development  Commercial Credit

Very poor diversification

The 3 months correlation between National and Commercial is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding National Development Bank and Commercial Credit and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Credit 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 Commercial Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Credit has no effect on the direction of National Development i.e., National Development and Commercial Credit go up and down completely randomly.

Pair Corralation between National Development and Commercial Credit

Assuming the 90 days trading horizon National Development is expected to generate 1.11 times less return on investment than Commercial Credit. But when comparing it to its historical volatility, National Development Bank is 1.24 times less risky than Commercial Credit. It trades about 0.1 of its potential returns per unit of risk. Commercial Credit and is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,250  in Commercial Credit and on September 14, 2024 and sell it today you would earn a total of  2,400  from holding Commercial Credit and or generate 106.67% return on investment over 90 days.

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

National Development Bank  vs.  Commercial Credit and

National Development Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Development Bank are ranked lower than 20 (%) 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.

Commercial Credit

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Credit and are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Commercial Credit sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Development and Commercial Credit

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

The idea behind National Development Bank and Commercial Credit and 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.