Correlation Between World Energy and Regional Bank
Can any of the company-specific risk be diversified away by investing in both World Energy and Regional 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 World Energy and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Energy Fund and Regional Bank Fund, you can compare the effects of market volatilities on World Energy and Regional 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 World Energy with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Regional Bank.
Diversification Opportunities for World Energy and Regional Bank
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between World and Regional is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and World Energy 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 World Energy Fund are associated (or correlated) with Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of World Energy i.e., World Energy and Regional Bank go up and down completely randomly.
Pair Corralation between World Energy and Regional Bank
Assuming the 90 days horizon World Energy Fund is expected to generate 0.75 times more return on investment than Regional Bank. However, World Energy Fund is 1.34 times less risky than Regional Bank. It trades about 0.1 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.07 per unit of risk. If you would invest 1,289 in World Energy Fund on November 3, 2024 and sell it today you would earn a total of 213.00 from holding World Energy Fund or generate 16.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Energy Fund vs. Regional Bank Fund
Performance |
| Timeline |
| World Energy |
| Regional Bank |
World Energy and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Energy and Regional Bank
The main advantage of trading using opposite World Energy and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy position performs unexpectedly, Regional 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 Regional Bank will offset losses from the drop in Regional Bank's long position.| World Energy vs. Chartwell Short Duration | World Energy vs. Needham Aggressive Growth | World Energy vs. Lgm Risk Managed | World Energy vs. Siit High Yield |
| Regional Bank vs. Touchstone Large Cap | Regional Bank vs. Ab Global Bond | Regional Bank vs. Tax Managed Large Cap | Regional Bank vs. Morningstar Global Income |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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