Correlation Between Pan Asia and Merchant Bank

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

Diversification Opportunities for Pan Asia and Merchant Bank

0.7

Correlation Coefficient

Pan Asia  Merchant Bank

Poor diversification

The 3 months correlation between Pan and Merchant is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Pan Asia Banking and Merchant Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchant Bank 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 Merchant Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchant Bank has no effect on the direction of Pan Asia i.e., Pan Asia and Merchant Bank go up and down completely randomly.

Pair Corralation between Pan Asia and Merchant Bank

Assuming the 90 days trading horizon Pan Asia Banking is expected to generate 0.79 times more return on investment than Merchant Bank. However, Pan Asia Banking is 1.27 times less risky than Merchant Bank. It trades about 0.12 of its potential returns per unit of risk. Merchant Bank of is currently generating about 0.05 per unit of risk. If you would invest  950.00  in Pan Asia Banking on October 11, 2024 and sell it today you would earn a total of  2,650  from holding Pan Asia Banking or generate 278.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.16%
Values	Daily Returns

Pan Asia Banking  vs.  Merchant Bank of

Pan Asia Banking

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Asia Banking are ranked lower than 27 (%) 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.

Merchant Bank

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Pan Asia and Merchant Bank

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

The idea behind Pan Asia Banking and Merchant Bank of 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.