Correlation Between Regional Bank and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Regional Bank and Dow Jones 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 Regional Bank and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Regional Bank Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Regional Bank and Dow Jones 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 Regional Bank with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Dow Jones.
Diversification Opportunities for Regional Bank and Dow Jones
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Regional and Dow is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Regional 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 Regional Bank Fund are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Regional Bank i.e., Regional Bank and Dow Jones go up and down completely randomly.
Pair Corralation between Regional Bank and Dow Jones
Assuming the 90 days horizon Regional Bank Fund is expected to generate 2.44 times more return on investment than Dow Jones. However, Regional Bank is 2.44 times more volatile than Dow Jones Industrial. It trades about 0.16 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.16 per unit of risk. If you would invest 2,356 in Regional Bank Fund on September 3, 2024 and sell it today you would earn a total of 1,029 from holding Regional Bank Fund or generate 43.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Regional Bank Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Regional Bank and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Regional Bank Fund
Pair trading matchups for Regional Bank
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Regional Bank and Dow Jones
The main advantage of trading using opposite Regional Bank and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Regional Bank vs. Fidelity Series 1000 | Regional Bank vs. Dodge Cox Stock | Regional Bank vs. American Mutual Fund | Regional Bank vs. Vanguard Windsor Fund |
| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
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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