Correlation Between Aozora Bank and Regions Financial
Can any of the company-specific risk be diversified away by investing in both Aozora Bank and Regions Financial 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 Aozora Bank and Regions Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aozora Bank and Regions Financial, you can compare the effects of market volatilities on Aozora Bank and Regions Financial 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 Aozora Bank with a short position of Regions Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aozora Bank and Regions Financial.
Diversification Opportunities for Aozora Bank and Regions Financial
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Aozora and Regions is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank and Regions Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regions Financial and Aozora Bank 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 Aozora Bank are associated (or correlated) with Regions Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regions Financial has no effect on the direction of Aozora Bank i.e., Aozora Bank and Regions Financial go up and down completely randomly.
Pair Corralation between Aozora Bank and Regions Financial
Assuming the 90 days horizon Aozora Bank is expected to under-perform the Regions Financial. But the stock apears to be less risky and, when comparing its historical volatility, Aozora Bank is 1.31 times less risky than Regions Financial. The stock trades about -0.03 of its potential returns per unit of risk. The Regions Financial is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 2,139 in Regions Financial on September 5, 2024 and sell it today you would earn a total of 401.00 from holding Regions Financial or generate 18.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Aozora Bank vs. Regions Financial
Performance |
| Timeline |
| Aozora Bank |
| Regions Financial |
Aozora Bank and Regions Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aozora Bank and Regions Financial
The main advantage of trading using opposite Aozora Bank and Regions Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aozora Bank position performs unexpectedly, Regions Financial 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 Regions Financial will offset losses from the drop in Regions Financial's long position.The idea behind Aozora Bank and Regions Financial 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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