Correlation Between Optima Bank and Foodlink

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

By analyzing existing cross correlation between Optima bank SA and Foodlink AE, you can compare the effects of market volatilities on Optima Bank and Foodlink 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 Optima Bank with a short position of Foodlink. Check out your portfolio center. Please also check ongoing floating volatility patterns of Optima Bank and Foodlink.

Diversification Opportunities for Optima Bank and Foodlink

-0.33

Correlation Coefficient

Optima Bank  Foodlink

Very good diversification

The 3 months correlation between Optima and Foodlink is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Optima bank SA and Foodlink AE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foodlink AE and Optima 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 Optima bank SA are associated (or correlated) with Foodlink. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foodlink AE has no effect on the direction of Optima Bank i.e., Optima Bank and Foodlink go up and down completely randomly.

Pair Corralation between Optima Bank and Foodlink

Assuming the 90 days trading horizon Optima bank SA is expected to under-perform the Foodlink. But the stock apears to be less risky and, when comparing its historical volatility, Optima bank SA is 1.7 times less risky than Foodlink. The stock trades about -0.06 of its potential returns per unit of risk. The Foodlink AE is currently generating about 0.7 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Foodlink AE on September 13, 2024 and sell it today you would earn a total of  10.00  from holding Foodlink AE or generate 31.25% return on investment over 90 days.

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

Optima bank SA  vs.  Foodlink AE

Optima bank SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Optima bank SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Optima Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Foodlink AE

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Optima Bank and Foodlink

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

The idea behind Optima bank SA and Foodlink AE 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.