Correlation Between Nations Trust and Pan Asia

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

By analyzing existing cross correlation between Nations Trust Bank and Pan Asia Banking, you can compare the effects of market volatilities on Nations Trust and Pan Asia 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 Nations Trust with a short position of Pan Asia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nations Trust and Pan Asia.

Diversification Opportunities for Nations Trust and Pan Asia

0.95

Correlation Coefficient

Nations Trust  Pan Asia

Almost no diversification

The 3 months correlation between Nations and Pan is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Nations Trust Bank and Pan Asia Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Asia Banking and Nations Trust 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 Nations Trust Bank are associated (or correlated) with Pan Asia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Asia Banking has no effect on the direction of Nations Trust i.e., Nations Trust and Pan Asia go up and down completely randomly.

Pair Corralation between Nations Trust and Pan Asia

Assuming the 90 days trading horizon Nations Trust is expected to generate 1.41 times less return on investment than Pan Asia. But when comparing it to its historical volatility, Nations Trust Bank is 1.29 times less risky than Pan Asia. It trades about 0.22 of its potential returns per unit of risk. Pan Asia Banking is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,110  in Pan Asia Banking on October 7, 2024 and sell it today you would earn a total of  1,650  from holding Pan Asia Banking or generate 78.2% return on investment over 90 days.

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

Nations Trust Bank  vs.  Pan Asia Banking

Nations Trust Bank

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nations Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pan Asia Banking

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Banking are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pan Asia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nations Trust and Pan Asia

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

The idea behind Nations Trust Bank and Pan Asia Banking 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.