Correlation Between National Capital and Washington Business

Can any of the company-specific risk be diversified away by investing in both National Capital and Washington Business 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 National Capital and Washington Business into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for National Capital and Washington Business

0.65

Correlation Coefficient

National Capital  Washington Business

Poor diversification

The 3 months correlation between National and Washington is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank and Washington Business Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Business Bank and National Capital 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 National Capital Bank are associated (or correlated) with Washington Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Business Bank has no effect on the direction of National Capital i.e., National Capital and Washington Business go up and down completely randomly.

Pair Corralation between National Capital and Washington Business

Given the investment horizon of 90 days National Capital Bank is expected to generate 4.9 times more return on investment than Washington Business. However, National Capital is 4.9 times more volatile than Washington Business Bank. It trades about 0.13 of its potential returns per unit of risk. Washington Business Bank is currently generating about 0.18 per unit of risk. If you would invest  18,432  in National Capital Bank on August 12, 2024 and sell it today you would earn a total of  3,568  from holding National Capital Bank or generate 19.36% return on investment over 90 days.

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

National Capital Bank  vs.  Washington Business Bank

National Capital Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Washington Business Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Business Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Washington Business is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with National Capital and Washington Business

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

The idea behind National Capital Bank and Washington Business 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.