Correlation Between Pan Asia and HNB Finance

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

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

Diversification Opportunities for Pan Asia and HNB Finance

-0.3

Correlation Coefficient

Pan Asia  HNB Finance

Very good diversification

The 3 months correlation between Pan and HNB is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Banking and HNB Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNB Finance and Pan Asia 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 Pan Asia Banking are associated (or correlated) with HNB Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNB Finance has no effect on the direction of Pan Asia i.e., Pan Asia and HNB Finance go up and down completely randomly.

Pair Corralation between Pan Asia and HNB Finance

Assuming the 90 days trading horizon Pan Asia Banking is expected to generate 0.27 times more return on investment than HNB Finance. However, Pan Asia Banking is 3.67 times less risky than HNB Finance. It trades about 0.42 of its potential returns per unit of risk. HNB Finance is currently generating about -0.08 per unit of risk. If you would invest  2,610  in Pan Asia Banking on September 25, 2024 and sell it today you would earn a total of  450.00  from holding Pan Asia Banking or generate 17.24% return on investment over 90 days.

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

Pan Asia Banking  vs.  HNB Finance

Pan Asia Banking

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Banking are ranked lower than 23 (%) 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.

HNB Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pan Asia and HNB Finance

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

The idea behind Pan Asia Banking and HNB Finance 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.