Correlation Between Unity Foods and MCB Bank
Can any of the company-specific risk be diversified away by investing in both Unity Foods 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 Unity Foods and MCB Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unity Foods and MCB Bank, you can compare the effects of market volatilities on Unity Foods 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 Unity Foods with a short position of MCB Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unity Foods and MCB Bank.
Diversification Opportunities for Unity Foods and MCB Bank
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Unity and MCB is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Unity Foods and MCB Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCB Bank and Unity Foods 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 Unity Foods 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 Unity Foods i.e., Unity Foods and MCB Bank go up and down completely randomly.
Pair Corralation between Unity Foods and MCB Bank
Assuming the 90 days trading horizon Unity Foods is expected to generate 1.37 times less return on investment than MCB Bank. In addition to that, Unity Foods is 1.41 times more volatile than MCB Bank. It trades about 0.08 of its total potential returns per unit of risk. MCB Bank is currently generating about 0.16 per unit of volatility. If you would invest 8,022 in MCB Bank on November 1, 2024 and sell it today you would earn a total of 19,829 from holding MCB Bank or generate 247.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Unity Foods vs. MCB Bank
Performance |
| Timeline |
| Unity Foods |
| MCB Bank |
Unity Foods and MCB Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Unity Foods and MCB Bank
The main advantage of trading using opposite Unity Foods and MCB Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Foods 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.| Unity Foods vs. Wah Nobel Chemicals | Unity Foods vs. Sitara Chemical Industries | Unity Foods vs. Metropolitan Steel Corp | Unity Foods vs. International Steels |
| MCB Bank vs. Air Link Communication | MCB Bank vs. Matco Foods | MCB Bank vs. Pakistan Telecommunication | MCB Bank vs. Unity Foods |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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