Correlation Between Seylan Bank and Nations Trust

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

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

Diversification Opportunities for Seylan Bank and Nations Trust

0.85

Correlation Coefficient

Seylan Bank  Nations Trust

Very poor diversification

The 3 months correlation between Seylan and Nations is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Seylan Bank PLC and Nations Trust Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nations Trust Bank and Seylan 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 Seylan Bank PLC are associated (or correlated) with Nations Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nations Trust Bank has no effect on the direction of Seylan Bank i.e., Seylan Bank and Nations Trust go up and down completely randomly.

Pair Corralation between Seylan Bank and Nations Trust

Assuming the 90 days trading horizon Seylan Bank is expected to generate 1.47 times less return on investment than Nations Trust. In addition to that, Seylan Bank is 1.21 times more volatile than Nations Trust Bank. It trades about 0.16 of its total potential returns per unit of risk. Nations Trust Bank is currently generating about 0.28 per unit of volatility. If you would invest  15,175  in Nations Trust Bank on December 3, 2024 and sell it today you would earn a total of  4,900  from holding Nations Trust Bank or generate 32.29% return on investment over 90 days.

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

Seylan Bank PLC  vs.  Nations Trust Bank

Seylan Bank PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Seylan Bank PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Seylan Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Nations Trust Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nations Trust Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nations Trust sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seylan Bank and Nations Trust

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

The idea behind Seylan Bank PLC and Nations Trust Bank 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.