Correlation Between FBD Holdings and Bank of Ireland

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

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

Diversification Opportunities for FBD Holdings and Bank of Ireland

0.9

Correlation Coefficient

FBD Holdings  Bank of Ireland

Almost no diversification

The 3 months correlation between FBD and Bank is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding FBD Holdings PLC and Bank of Ireland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Ireland and FBD Holdings 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 FBD Holdings PLC are associated (or correlated) with Bank of Ireland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Ireland has no effect on the direction of FBD Holdings i.e., FBD Holdings and Bank of Ireland go up and down completely randomly.

Pair Corralation between FBD Holdings and Bank of Ireland

Assuming the 90 days trading horizon FBD Holdings is expected to generate 1.68 times less return on investment than Bank of Ireland. In addition to that, FBD Holdings is 1.11 times more volatile than Bank of Ireland. It trades about 0.11 of its total potential returns per unit of risk. Bank of Ireland is currently generating about 0.2 per unit of volatility. If you would invest  945.00  in Bank of Ireland on January 28, 2024 and sell it today you would earn a total of  67.00  from holding Bank of Ireland or generate 7.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

FBD Holdings PLC  vs.  Bank of Ireland

FBD Holdings PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FBD Holdings PLC are ranked lower than 11 (%) 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.

Bank of Ireland

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Ireland are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Bank of Ireland reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FBD Holdings and Bank of Ireland

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

The idea behind FBD Holdings PLC and Bank of Ireland 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.