Correlation Between Regional Bank and M Large
Can any of the company-specific risk be diversified away by investing in both Regional Bank and M Large 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 M Large 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 M Large Cap, you can compare the effects of market volatilities on Regional Bank and M Large 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 M Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and M Large.
Diversification Opportunities for Regional Bank and M Large
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Regional and MTCGX is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and M Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Large Cap 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 M Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Large Cap has no effect on the direction of Regional Bank i.e., Regional Bank and M Large go up and down completely randomly.
Pair Corralation between Regional Bank and M Large
Assuming the 90 days horizon Regional Bank is expected to generate 1.88 times less return on investment than M Large. In addition to that, Regional Bank is 1.44 times more volatile than M Large Cap. It trades about 0.02 of its total potential returns per unit of risk. M Large Cap is currently generating about 0.06 per unit of volatility. If you would invest 2,420 in M Large Cap on November 27, 2024 and sell it today you would earn a total of 907.00 from holding M Large Cap or generate 37.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Regional Bank Fund vs. M Large Cap
Performance |
| Timeline |
| Regional Bank |
| M Large Cap |
Regional Bank and M Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Regional Bank and M Large
The main advantage of trading using opposite Regional Bank and M Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, M Large 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 M Large will offset losses from the drop in M Large's 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 |
| M Large vs. T Rowe Price | M Large vs. Ashmore Emerging Markets | M Large vs. Fidelity Small Cap | M Large vs. T Rowe Price |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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