Correlation Between STERLING FINANCIAL and ZENITH BANK

Can any of the company-specific risk be diversified away by investing in both STERLING FINANCIAL and ZENITH 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 ZENITH 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 ZENITH BANK PLC, you can compare the effects of market volatilities on STERLING FINANCIAL and ZENITH 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 ZENITH BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of STERLING FINANCIAL and ZENITH BANK.

Diversification Opportunities for STERLING FINANCIAL and ZENITH BANK

0.78

Correlation Coefficient

STERLING FINANCIAL  ZENITH BANK

Poor diversification

The 3 months correlation between STERLING and ZENITH is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding STERLING FINANCIAL HOLDINGS and ZENITH BANK PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZENITH 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 ZENITH BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZENITH BANK PLC has no effect on the direction of STERLING FINANCIAL i.e., STERLING FINANCIAL and ZENITH BANK go up and down completely randomly.

Pair Corralation between STERLING FINANCIAL and ZENITH BANK

Assuming the 90 days trading horizon STERLING FINANCIAL is expected to generate 2.77 times less return on investment than ZENITH BANK. In addition to that, STERLING FINANCIAL is 1.28 times more volatile than ZENITH BANK PLC. It trades about 0.08 of its total potential returns per unit of risk. ZENITH BANK PLC is currently generating about 0.29 per unit of volatility. If you would invest  4,800  in ZENITH BANK PLC on May 6, 2025 and sell it today you would earn a total of  2,850  from holding ZENITH BANK PLC or generate 59.38% return on investment over 90 days.

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

STERLING FINANCIAL HOLDINGS  vs.  ZENITH BANK PLC

STERLING FINANCIAL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STERLING FINANCIAL HOLDINGS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, STERLING FINANCIAL displayed solid returns over the last few months and may actually be approaching a breakup point.

ZENITH BANK PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ZENITH BANK PLC are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, ZENITH BANK sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STERLING FINANCIAL and ZENITH BANK

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

The idea behind STERLING FINANCIAL HOLDINGS and ZENITH 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.