Correlation Between Silkbank and Soneri Bank

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Can any of the company-specific risk be diversified away by investing in both Silkbank and Soneri 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 Silkbank and Soneri Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Silkbank and Soneri Bank, you can compare the effects of market volatilities on Silkbank and Soneri 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 Silkbank with a short position of Soneri Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silkbank and Soneri Bank.

Diversification Opportunities for Silkbank and Soneri Bank

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Silkbank and Soneri is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Silkbank and Soneri Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Soneri Bank and Silkbank 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 Silkbank are associated (or correlated) with Soneri Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Soneri Bank has no effect on the direction of Silkbank i.e., Silkbank and Soneri Bank go up and down completely randomly.

Pair Corralation between Silkbank and Soneri Bank

Assuming the 90 days trading horizon Silkbank is expected to generate 2.84 times less return on investment than Soneri Bank. In addition to that, Silkbank is 1.56 times more volatile than Soneri Bank. It trades about 0.02 of its total potential returns per unit of risk. Soneri Bank is currently generating about 0.11 per unit of volatility. If you would invest  622.00  in Soneri Bank on October 10, 2024 and sell it today you would earn a total of  1,138  from holding Soneri Bank or generate 182.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.17%
ValuesDaily Returns

Silkbank  vs.  Soneri Bank

 Performance 
       Timeline  
Silkbank 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Silkbank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Silkbank sustained solid returns over the last few months and may actually be approaching a breakup point.
Soneri Bank 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Soneri Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Soneri Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Silkbank and Soneri Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Silkbank and Soneri Bank

The main advantage of trading using opposite Silkbank and Soneri Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Silkbank position performs unexpectedly, Soneri 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 Soneri Bank will offset losses from the drop in Soneri Bank's long position.
The idea behind Silkbank and Soneri 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.
Check out your portfolio center.
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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