Correlation Between Regional Bank and Financial Services
Can any of the company-specific risk be diversified away by investing in both Regional Bank and Financial Services 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 Services 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 Services Fund, you can compare the effects of market volatilities on Regional Bank and Financial Services 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 Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Financial Services.
Diversification Opportunities for Regional Bank and Financial Services
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Regional and Financial is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Regional Bank i.e., Regional Bank and Financial Services go up and down completely randomly.
Pair Corralation between Regional Bank and Financial Services
Assuming the 90 days horizon Regional Bank is expected to generate 1.34 times less return on investment than Financial Services. But when comparing it to its historical volatility, Regional Bank Fund is 1.05 times less risky than Financial Services. It trades about 0.04 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,184 in Financial Services Fund on September 3, 2024 and sell it today you would earn a total of 2,834 from holding Financial Services Fund or generate 45.83% return on investment 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 Services Fund
Performance |
| Timeline |
| Regional Bank |
| Financial Services |
Regional Bank and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Regional Bank and Financial Services
The main advantage of trading using opposite Regional Bank and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, Financial Services 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 Services will offset losses from the drop in Financial Services' long position.| Regional Bank vs. Vanguard Financials Index | Regional Bank vs. Regional Bank Fund | Regional Bank vs. T Rowe Price | Regional Bank vs. Financial Industries Fund |
| Financial Services vs. Blackrock Exchange Portfolio | Financial Services vs. Dws Government Money | Financial Services vs. First American Funds | Financial Services vs. General Money Market |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
Other Complementary Tools
| Stocks Directory Find actively traded stocks across global markets | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |