Correlation Between Fundamental Large and Regional Bank
Can any of the company-specific risk be diversified away by investing in both Fundamental Large 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 Fundamental Large and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fundamental Large Cap and Regional Bank Fund, you can compare the effects of market volatilities on Fundamental Large 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 Fundamental Large with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fundamental Large and Regional Bank.
Diversification Opportunities for Fundamental Large and Regional Bank
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FUNDAMENTAL and Regional is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Fundamental Large 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 Fundamental Large Cap 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 Fundamental Large i.e., Fundamental Large and Regional Bank go up and down completely randomly.
Pair Corralation between Fundamental Large and Regional Bank
Assuming the 90 days horizon Fundamental Large is expected to generate 1.55 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Fundamental Large Cap is 2.1 times less risky than Regional Bank. It trades about 0.13 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,333 in Regional Bank Fund on September 4, 2024 and sell it today you would earn a total of 1,052 from holding Regional Bank Fund or generate 45.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fundamental Large Cap vs. Regional Bank Fund
Performance |
| Timeline |
| Fundamental Large Cap |
| Regional Bank |
Fundamental Large and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fundamental Large and Regional Bank
The main advantage of trading using opposite Fundamental Large and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fundamental Large 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.| Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Regional Bank Fund | Fundamental Large vs. Multimanager Lifestyle Moderate | Fundamental Large vs. Multimanager Lifestyle Balanced |
| Regional Bank vs. Dreyfusstandish Global Fixed | Regional Bank vs. Barings Global Floating | Regional Bank vs. Nationwide Global Equity | Regional Bank vs. Ab Global Real |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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