Correlation Between STERLING FINANCIAL and WEMA BANK

Can any of the company-specific risk be diversified away by investing in both STERLING FINANCIAL and WEMA 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 STERLING FINANCIAL and WEMA BANK into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STERLING FINANCIAL HOLDINGS and WEMA BANK PLC, you can compare the effects of market volatilities on STERLING FINANCIAL and WEMA 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 STERLING FINANCIAL with a short position of WEMA BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of STERLING FINANCIAL and WEMA BANK.

Diversification Opportunities for STERLING FINANCIAL and WEMA BANK

0.77

Correlation Coefficient

STERLING FINANCIAL  WEMA BANK

Poor diversification

The 3 months correlation between STERLING and WEMA is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding STERLING FINANCIAL HOLDINGS and WEMA BANK PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEMA BANK PLC and STERLING FINANCIAL 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 STERLING FINANCIAL HOLDINGS are associated (or correlated) with WEMA BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEMA BANK PLC has no effect on the direction of STERLING FINANCIAL i.e., STERLING FINANCIAL and WEMA BANK go up and down completely randomly.

Pair Corralation between STERLING FINANCIAL and WEMA BANK

Assuming the 90 days trading horizon STERLING FINANCIAL HOLDINGS is expected to generate 1.18 times more return on investment than WEMA BANK. However, STERLING FINANCIAL is 1.18 times more volatile than WEMA BANK PLC. It trades about 0.09 of its potential returns per unit of risk. WEMA BANK PLC is currently generating about 0.08 per unit of risk. If you would invest  150.00  in STERLING FINANCIAL HOLDINGS on October 21, 2024 and sell it today you would earn a total of  417.00  from holding STERLING FINANCIAL HOLDINGS or generate 278.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.96%
Values	Daily Returns

STERLING FINANCIAL HOLDINGS  vs.  WEMA BANK PLC

STERLING FINANCIAL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STERLING FINANCIAL HOLDINGS are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, STERLING FINANCIAL displayed solid returns over the last few months and may actually be approaching a breakup point.

WEMA BANK PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEMA BANK PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, WEMA BANK displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STERLING FINANCIAL and WEMA BANK

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

The idea behind STERLING FINANCIAL HOLDINGS and WEMA BANK PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.