Correlation Between Punjab National and IDBI Bank

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

By analyzing existing cross correlation between Punjab National Bank and IDBI Bank Limited, you can compare the effects of market volatilities on Punjab National and IDBI 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 Punjab National with a short position of IDBI Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Punjab National and IDBI Bank.

Diversification Opportunities for Punjab National and IDBI Bank

0.57

Correlation Coefficient

Punjab National  IDBI Bank

Very weak diversification

The 3 months correlation between Punjab and IDBI is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Punjab National Bank and IDBI Bank Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDBI Bank Limited and Punjab National 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 Punjab National Bank are associated (or correlated) with IDBI Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDBI Bank Limited has no effect on the direction of Punjab National i.e., Punjab National and IDBI Bank go up and down completely randomly.

Pair Corralation between Punjab National and IDBI Bank

Assuming the 90 days trading horizon Punjab National Bank is expected to under-perform the IDBI Bank. But the stock apears to be less risky and, when comparing its historical volatility, Punjab National Bank is 1.75 times less risky than IDBI Bank. The stock trades about -0.03 of its potential returns per unit of risk. The IDBI Bank Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  7,590  in IDBI Bank Limited on December 30, 2024 and sell it today you would earn a total of  180.00  from holding IDBI Bank Limited or generate 2.37% return on investment over 90 days.

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

Punjab National Bank  vs.  IDBI Bank Limited

Punjab National Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Punjab National is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

IDBI Bank Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in IDBI Bank Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IDBI Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Punjab National and IDBI Bank

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

The idea behind Punjab National Bank and IDBI Bank Limited 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.