Correlation Between Regional Bank and Small Cap
Can any of the company-specific risk be diversified away by investing in both Regional Bank and Small Cap 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 Small Cap 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 Small Cap Growth, you can compare the effects of market volatilities on Regional Bank and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Small Cap.
Diversification Opportunities for Regional Bank and Small Cap
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Regional and Small is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Regional Bank i.e., Regional Bank and Small Cap go up and down completely randomly.
Pair Corralation between Regional Bank and Small Cap
Assuming the 90 days horizon Regional Bank Fund is expected to generate 1.33 times more return on investment than Small Cap. However, Regional Bank is 1.33 times more volatile than Small Cap Growth. It trades about 0.1 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.13 per unit of risk. If you would invest 2,267 in Regional Bank Fund on August 27, 2024 and sell it today you would earn a total of 1,123 from holding Regional Bank Fund or generate 49.54% 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. Small Cap Growth
Performance |
| Timeline |
| Regional Bank |
| Small Cap Growth |
Regional Bank and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Regional Bank and Small Cap
The main advantage of trading using opposite Regional Bank and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Regional Bank vs. Aqr Large Cap | Regional Bank vs. Nuveen Winslow Large Cap | Regional Bank vs. Goldman Sachs Large | Regional Bank vs. Rational Strategic Allocation |
| Small Cap vs. Regional Bank Fund | Small Cap vs. Regional Bank Fund | Small Cap vs. Multimanager Lifestyle Moderate | Small Cap vs. Multimanager Lifestyle Balanced |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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