Correlation Between Trans Asia and Amana Bank

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

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

Diversification Opportunities for Trans Asia and Amana Bank

0.76

Correlation Coefficient

Trans Asia  Amana Bank

Poor diversification

The 3 months correlation between Trans and Amana is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Trans Asia Hotels and Amana Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amana Bank and Trans 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 Trans Asia Hotels are associated (or correlated) with Amana Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amana Bank has no effect on the direction of Trans Asia i.e., Trans Asia and Amana Bank go up and down completely randomly.

Pair Corralation between Trans Asia and Amana Bank

Assuming the 90 days trading horizon Trans Asia Hotels is expected to under-perform the Amana Bank. In addition to that, Trans Asia is 1.47 times more volatile than Amana Bank. It trades about -0.08 of its total potential returns per unit of risk. Amana Bank is currently generating about -0.06 per unit of volatility. If you would invest  2,460  in Amana Bank on December 25, 2024 and sell it today you would lose (110.00) from holding Amana Bank or give up 4.47% of portfolio value over 90 days.

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

Trans Asia Hotels  vs.  Amana Bank

Trans Asia Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trans Asia Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Amana Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amana Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Amana Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Trans Asia and Amana Bank

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

The idea behind Trans Asia Hotels and Amana 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.