Correlation Between MCB Bank and TPL Insurance
Can any of the company-specific risk be diversified away by investing in both MCB Bank and TPL Insurance 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 TPL Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MCB Bank and TPL Insurance, you can compare the effects of market volatilities on MCB Bank and TPL Insurance 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 TPL Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of MCB Bank and TPL Insurance.
Diversification Opportunities for MCB Bank and TPL Insurance
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MCB and TPL is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding MCB Bank and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance 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 TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of MCB Bank i.e., MCB Bank and TPL Insurance go up and down completely randomly.
Pair Corralation between MCB Bank and TPL Insurance
Assuming the 90 days trading horizon MCB Bank is expected to generate 0.71 times more return on investment than TPL Insurance. However, MCB Bank is 1.41 times less risky than TPL Insurance. It trades about 0.11 of its potential returns per unit of risk. TPL Insurance is currently generating about 0.04 per unit of risk. If you would invest 24,853 in MCB Bank on October 25, 2024 and sell it today you would earn a total of 3,559 from holding MCB Bank or generate 14.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.39% |
| Values | Daily Returns |
MCB Bank vs. TPL Insurance
Performance |
| Timeline |
| MCB Bank |
| TPL Insurance |
MCB Bank and TPL Insurance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MCB Bank and TPL Insurance
The main advantage of trading using opposite MCB Bank and TPL Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MCB Bank position performs unexpectedly, TPL Insurance 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 TPL Insurance will offset losses from the drop in TPL Insurance's long position.| MCB Bank vs. EFU General Insurance | MCB Bank vs. National Foods | MCB Bank vs. Adamjee Insurance | MCB Bank vs. Silkbank |
| TPL Insurance vs. Shifa International Hospitals | TPL Insurance vs. Agritech | TPL Insurance vs. IGI Life Insurance | TPL Insurance vs. Sindh Modaraba Management |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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