Correlation Between MCB Bank and Tata Textile
Can any of the company-specific risk be diversified away by investing in both MCB Bank and Tata Textile 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 MCB Bank and Tata Textile into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MCB Bank and Tata Textile Mills, you can compare the effects of market volatilities on MCB Bank and Tata Textile 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 MCB Bank with a short position of Tata Textile. Check out your portfolio center. Please also check ongoing floating volatility patterns of MCB Bank and Tata Textile.
Diversification Opportunities for MCB Bank and Tata Textile
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between MCB and Tata is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and Tata Textile Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Textile Mills and MCB 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 MCB Bank are associated (or correlated) with Tata Textile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Textile Mills has no effect on the direction of MCB Bank i.e., MCB Bank and Tata Textile go up and down completely randomly.
Pair Corralation between MCB Bank and Tata Textile
Assuming the 90 days trading horizon MCB Bank is expected to generate 0.51 times more return on investment than Tata Textile. However, MCB Bank is 1.96 times less risky than Tata Textile. It trades about 0.18 of its potential returns per unit of risk. Tata Textile Mills is currently generating about 0.05 per unit of risk. If you would invest 20,963 in MCB Bank on September 12, 2024 and sell it today you would earn a total of 5,453 from holding MCB Bank or generate 26.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 92.19% |
| Values | Daily Returns |
MCB Bank vs. Tata Textile Mills
Performance |
| Timeline |
| MCB Bank |
| Tata Textile Mills |
MCB Bank and Tata Textile Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MCB Bank and Tata Textile
The main advantage of trading using opposite MCB Bank and Tata Textile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MCB Bank position performs unexpectedly, Tata Textile 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 Tata Textile will offset losses from the drop in Tata Textile's long position.| MCB Bank vs. Oil and Gas | MCB Bank vs. Pakistan State Oil | MCB Bank vs. Pakistan Petroleum | MCB Bank vs. Fauji Fertilizer |
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Check out your portfolio center.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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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