Correlation Between Oil and MCB Bank
Can any of the company-specific risk be diversified away by investing in both Oil and MCB 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 Oil and MCB Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil and Gas and MCB Bank, you can compare the effects of market volatilities on Oil and MCB 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 Oil with a short position of MCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil and MCB Bank.
Diversification Opportunities for Oil and MCB Bank
Very poor diversification
The 3 months correlation between Oil and MCB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and Oil 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 Oil and Gas are associated (or correlated) with MCB Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCB Bank has no effect on the direction of Oil i.e., Oil and MCB Bank go up and down completely randomly.
Pair Corralation between Oil and MCB Bank
Assuming the 90 days trading horizon Oil and Gas is expected to generate 1.08 times more return on investment than MCB Bank. However, Oil is 1.08 times more volatile than MCB Bank. It trades about 0.17 of its potential returns per unit of risk. MCB Bank is currently generating about 0.15 per unit of risk. If you would invest 12,695 in Oil and Gas on August 30, 2024 and sell it today you would earn a total of 6,667 from holding Oil and Gas or generate 52.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oil and Gas vs. MCB Bank
Performance |
| Timeline |
| Oil and Gas |
| MCB Bank |
Oil and MCB Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil and MCB Bank
The main advantage of trading using opposite Oil and MCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil position performs unexpectedly, MCB 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 MCB Bank will offset losses from the drop in MCB Bank's long position.The idea behind Oil and Gas and MCB 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.| MCB Bank vs. Masood Textile Mills | MCB Bank vs. Fauji Foods | MCB Bank vs. KSB Pumps | MCB Bank vs. Mari Petroleum |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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