Correlation Between TPL Insurance and MCB Bank

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Can any of the company-specific risk be diversified away by investing in both TPL Insurance 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 TPL Insurance and MCB Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TPL Insurance and MCB Bank, you can compare the effects of market volatilities on TPL Insurance 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 TPL Insurance with a short position of MCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of TPL Insurance and MCB Bank.

Diversification Opportunities for TPL Insurance and MCB Bank

0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between TPL and MCB is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding TPL Insurance and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and TPL Insurance 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 TPL Insurance 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 TPL Insurance i.e., TPL Insurance and MCB Bank go up and down completely randomly.

Pair Corralation between TPL Insurance and MCB Bank

Assuming the 90 days trading horizon TPL Insurance is expected to under-perform the MCB Bank. In addition to that, TPL Insurance is 2.95 times more volatile than MCB Bank. It trades about -0.19 of its total potential returns per unit of risk. MCB Bank is currently generating about -0.03 per unit of volatility. If you would invest  28,541  in MCB Bank on November 4, 2024 and sell it today you would lose (177.00) from holding MCB Bank or give up 0.62% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

TPL Insurance  vs.  MCB Bank

 Performance 
       Timeline  
TPL Insurance 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in March 2025.
MCB Bank 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in MCB Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, MCB Bank reported solid returns over the last few months and may actually be approaching a breakup point.

TPL Insurance and MCB Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with TPL Insurance and MCB Bank

The main advantage of trading using opposite TPL Insurance and MCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPL Insurance 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 TPL Insurance 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.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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