Correlation Between Automatic Bank and First International

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

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

Diversification Opportunities for Automatic Bank and First International

0.92

Correlation Coefficient

Automatic Bank  First International

Almost no diversification

The 3 months correlation between Automatic and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Bank Services and First International Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First International Bank and Automatic Bank 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 Automatic Bank Services are associated (or correlated) with First International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First International Bank has no effect on the direction of Automatic Bank i.e., Automatic Bank and First International go up and down completely randomly.

Pair Corralation between Automatic Bank and First International

Assuming the 90 days trading horizon Automatic Bank Services is expected to generate 2.22 times more return on investment than First International. However, Automatic Bank is 2.22 times more volatile than First International Bank. It trades about 0.6 of its potential returns per unit of risk. First International Bank is currently generating about 0.27 per unit of risk. If you would invest  179,600  in Automatic Bank Services on September 5, 2024 and sell it today you would earn a total of  57,800  from holding Automatic Bank Services or generate 32.18% return on investment over 90 days.

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

Automatic Bank Services  vs.  First International Bank

Automatic Bank Services

Risk-Adjusted Performance

35 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Bank Services are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Automatic Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

First International Bank

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First International Bank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Bank and First International

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

The idea behind Automatic Bank Services and First International 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.