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
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Regional and Financial is 0.98. 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 under-perform the Financial Industries. In addition to that, Regional Bank is 1.37 times more volatile than Financial Industries Fund. It trades about -0.15 of its total potential returns per unit of risk. Financial Industries Fund is currently generating about -0.15 per unit of volatility. If you would invest 1,906 in Financial Industries Fund on November 27, 2024 and sell it today you would lose (49.00) from holding Financial Industries Fund or give up 2.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Regional Bank Fund vs. Financial Industries Fund
Performance |
| Timeline |
| Regional Bank |
| Financial Industries |
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. The Hartford Inflation | Regional Bank vs. Inflation Linked Fixed Income | Regional Bank vs. Aqr Managed Futures | Regional Bank vs. Ab Bond Inflation |
| Financial Industries vs. Ashmore Emerging Markets | Financial Industries vs. Nuveen Small Cap | Financial Industries vs. Astoncrosswind Small Cap | Financial Industries vs. Glg Intl Small |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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