Correlation Between TRANSCORP HOTELS and WEMA BANK

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

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

Diversification Opportunities for TRANSCORP HOTELS and WEMA BANK

0.61

Correlation Coefficient

TRANSCORP HOTELS  WEMA BANK

Poor diversification

The 3 months correlation between TRANSCORP and WEMA is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding TRANSCORP HOTELS PLC 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 TRANSCORP HOTELS 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 TRANSCORP HOTELS PLC 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 TRANSCORP HOTELS i.e., TRANSCORP HOTELS and WEMA BANK go up and down completely randomly.

Pair Corralation between TRANSCORP HOTELS and WEMA BANK

Assuming the 90 days trading horizon TRANSCORP HOTELS is expected to generate 2.78 times less return on investment than WEMA BANK. But when comparing it to its historical volatility, TRANSCORP HOTELS PLC is 1.3 times less risky than WEMA BANK. It trades about 0.05 of its potential returns per unit of risk. WEMA BANK PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  735.00  in WEMA BANK PLC on October 9, 2024 and sell it today you would earn a total of  365.00  from holding WEMA BANK PLC or generate 49.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.39%
Values	Daily Returns

TRANSCORP HOTELS PLC  vs.  WEMA BANK PLC

TRANSCORP HOTELS PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TRANSCORP HOTELS PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, TRANSCORP HOTELS displayed solid returns over the last few months and may actually be approaching a breakup point.

WEMA BANK PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEMA BANK PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, WEMA BANK displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRANSCORP HOTELS and WEMA BANK

The main advantage of trading using opposite TRANSCORP HOTELS and WEMA BANK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRANSCORP HOTELS 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 TRANSCORP HOTELS PLC 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..