Correlation Between AIB Group and FBD Holdings

Can any of the company-specific risk be diversified away by investing in both AIB Group and FBD Holdings 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 AIB Group and FBD Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AIB Group PLC and FBD Holdings PLC, you can compare the effects of market volatilities on AIB Group and FBD Holdings 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 AIB Group with a short position of FBD Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIB Group and FBD Holdings.

Diversification Opportunities for AIB Group and FBD Holdings

0.95

Correlation Coefficient

AIB Group  FBD Holdings

Almost no diversification

The 3 months correlation between AIB and FBD is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding AIB Group PLC and FBD Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FBD Holdings PLC and AIB Group 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 AIB Group PLC are associated (or correlated) with FBD Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FBD Holdings PLC has no effect on the direction of AIB Group i.e., AIB Group and FBD Holdings go up and down completely randomly.

Pair Corralation between AIB Group and FBD Holdings

Assuming the 90 days trading horizon AIB Group PLC is expected to generate 0.89 times more return on investment than FBD Holdings. However, AIB Group PLC is 1.12 times less risky than FBD Holdings. It trades about 0.08 of its potential returns per unit of risk. FBD Holdings PLC is currently generating about 0.07 per unit of risk. If you would invest  477.00  in AIB Group PLC on January 30, 2024 and sell it today you would earn a total of  11.00  from holding AIB Group PLC or generate 2.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

AIB Group PLC  vs.  FBD Holdings PLC

AIB Group PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AIB Group PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, AIB Group reported solid returns over the last few months and may actually be approaching a breakup point.

FBD Holdings PLC

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FBD Holdings PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, FBD Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AIB Group and FBD Holdings

The main advantage of trading using opposite AIB Group and FBD Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIB Group position performs unexpectedly, FBD Holdings 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 FBD Holdings will offset losses from the drop in FBD Holdings' long position.

The idea behind AIB Group PLC and FBD Holdings PLC 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.

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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.