Correlation Between State Bank and Power FinanceLimited
Can any of the company-specific risk be diversified away by investing in both State Bank and Power FinanceLimited 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 State Bank and Power FinanceLimited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between State Bank of and Power Finance, you can compare the effects of market volatilities on State Bank and Power FinanceLimited 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 State Bank with a short position of Power FinanceLimited. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Bank and Power FinanceLimited.
Diversification Opportunities for State Bank and Power FinanceLimited
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between State and Power is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power FinanceLimited and State 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 State Bank of are associated (or correlated) with Power FinanceLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power FinanceLimited has no effect on the direction of State Bank i.e., State Bank and Power FinanceLimited go up and down completely randomly.
Pair Corralation between State Bank and Power FinanceLimited
Assuming the 90 days trading horizon State Bank is expected to generate 4.7 times less return on investment than Power FinanceLimited. But when comparing it to its historical volatility, State Bank of is 2.25 times less risky than Power FinanceLimited. It trades about 0.05 of its potential returns per unit of risk. Power Finance is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 10,326 in Power Finance on August 30, 2024 and sell it today you would earn a total of 38,784 from holding Power Finance or generate 375.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.59% |
| Values | Daily Returns |
State Bank of vs. Power Finance
Performance |
| Timeline |
| State Bank |
| Power FinanceLimited |
State Bank and Power FinanceLimited Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with State Bank and Power FinanceLimited
The main advantage of trading using opposite State Bank and Power FinanceLimited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Bank position performs unexpectedly, Power FinanceLimited 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 Power FinanceLimited will offset losses from the drop in Power FinanceLimited's long position.| State Bank vs. MRF Limited | State Bank vs. Nalwa Sons Investments | State Bank vs. Vardhman Holdings Limited |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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