Correlation Between Optima Bank and Quest Holdings

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

Diversification Opportunities for Optima Bank and Quest Holdings

0.24

Correlation Coefficient

Optima Bank  Quest Holdings

Modest diversification

The 3 months correlation between Optima and Quest is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Optima bank SA and Quest Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quest Holdings SA 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 Quest Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quest Holdings SA has no effect on the direction of Optima Bank i.e., Optima Bank and Quest Holdings go up and down completely randomly.

Pair Corralation between Optima Bank and Quest Holdings

Assuming the 90 days trading horizon Optima bank SA is expected to generate 0.92 times more return on investment than Quest Holdings. However, Optima bank SA is 1.09 times less risky than Quest Holdings. It trades about 0.33 of its potential returns per unit of risk. Quest Holdings SA is currently generating about 0.05 per unit of risk. If you would invest  1,278  in Optima bank SA on December 22, 2024 and sell it today you would earn a total of  334.00  from holding Optima bank SA or generate 26.13% return on investment over 90 days.

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

Optima bank SA  vs.  Quest Holdings SA

Optima bank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Optima bank SA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Optima Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Quest Holdings SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quest Holdings SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Quest Holdings is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Optima Bank and Quest Holdings

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

The idea behind Optima bank SA and Quest Holdings SA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.