Correlation Between Sovereign Metals and National Bank

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

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

Diversification Opportunities for Sovereign Metals and National Bank

0.73

Correlation Coefficient

Sovereign Metals  National Bank

Poor diversification

The 3 months correlation between Sovereign and National is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals Limited and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings and Sovereign Metals 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 Sovereign Metals Limited are associated (or correlated) with National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Sovereign Metals i.e., Sovereign Metals and National Bank go up and down completely randomly.

Pair Corralation between Sovereign Metals and National Bank

Assuming the 90 days horizon Sovereign Metals Limited is expected to under-perform the National Bank. In addition to that, Sovereign Metals is 2.1 times more volatile than National Bank Holdings. It trades about -0.2 of its total potential returns per unit of risk. National Bank Holdings is currently generating about -0.37 per unit of volatility. If you would invest  4,480  in National Bank Holdings on September 30, 2024 and sell it today you would lose (400.00) from holding National Bank Holdings or give up 8.93% of portfolio value over 90 days.

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

Sovereign Metals Limited  vs.  National Bank Holdings

Sovereign Metals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sovereign Metals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

National Bank Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sovereign Metals and National Bank

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

The idea behind Sovereign Metals Limited and National Bank Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.