Correlation Between Global Absolute and Regional Bank
Can any of the company-specific risk be diversified away by investing in both Global Absolute and Regional Bank 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 Global Absolute and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Absolute Return and Regional Bank Fund, you can compare the effects of market volatilities on Global Absolute and Regional Bank 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 Global Absolute with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Absolute and Regional Bank.
Diversification Opportunities for Global Absolute and Regional Bank
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Global and Regional is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Global Absolute Return and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Global Absolute 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 Global Absolute Return are associated (or correlated) with Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of Global Absolute i.e., Global Absolute and Regional Bank go up and down completely randomly.
Pair Corralation between Global Absolute and Regional Bank
Assuming the 90 days horizon Global Absolute is expected to generate 4.31 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Global Absolute Return is 4.69 times less risky than Regional Bank. It trades about 0.08 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,535 in Regional Bank Fund on September 14, 2024 and sell it today you would earn a total of 790.00 from holding Regional Bank Fund or generate 31.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Global Absolute Return vs. Regional Bank Fund
Performance |
| Timeline |
| Global Absolute Return |
| Regional Bank |
Global Absolute and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Absolute and Regional Bank
The main advantage of trading using opposite Global Absolute and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Absolute position performs unexpectedly, Regional Bank 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 Regional Bank will offset losses from the drop in Regional Bank's long position.| Global Absolute vs. Regional Bank Fund | Global Absolute vs. Regional Bank Fund | Global Absolute vs. Multimanager Lifestyle Moderate | Global Absolute vs. Multimanager Lifestyle Balanced |
| Regional Bank vs. Regional Bank Fund | Regional Bank vs. Multimanager Lifestyle Moderate | Regional Bank vs. Multimanager Lifestyle Balanced | Regional Bank vs. Multimanager Lifestyle Aggressive |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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