Correlation Between Regional Bank and Financial Industries
Can any of the company-specific risk be diversified away by investing in both Regional Bank and Financial Industries 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 Financial Industries 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 Financial Industries Fund, you can compare the effects of market volatilities on Regional Bank and Financial Industries 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 Financial Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Financial Industries.
Diversification Opportunities for Regional Bank and Financial Industries
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Regional and Financial is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries 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 Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of Regional Bank i.e., Regional Bank and Financial Industries go up and down completely randomly.
Pair Corralation between Regional Bank and Financial Industries
Assuming the 90 days horizon Regional Bank Fund is expected to generate 1.57 times more return on investment than Financial Industries. However, Regional Bank is 1.57 times more volatile than Financial Industries Fund. It trades about 0.25 of its potential returns per unit of risk. Financial Industries Fund is currently generating about 0.28 per unit of risk. If you would invest 2,933 in Regional Bank Fund on September 5, 2024 and sell it today you would earn a total of 452.00 from holding Regional Bank Fund or generate 15.41% 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. Financial Industries Fund
Performance |
| Timeline |
| Regional Bank |
| Financial Industries |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Regional Bank and Financial Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Regional Bank and Financial Industries
The main advantage of trading using opposite Regional Bank and Financial Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, Financial Industries 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 Financial Industries will offset losses from the drop in Financial Industries' long position.| Regional Bank vs. Limited Term Tax | Regional Bank vs. Ab Bond Inflation | Regional Bank vs. Transamerica Funds | Regional Bank vs. Artisan High Income |
| Financial Industries vs. Nuveen Real Estate | Financial Industries vs. Vanguard Reit Index | Financial Industries vs. Forum Real Estate | Financial Industries vs. Virtus Real Estate |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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