Correlation Between Red River and International Bancshares
Can any of the company-specific risk be diversified away by investing in both Red River and International Bancshares 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 Red River and International Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Red River Bancshares and International Bancshares, you can compare the effects of market volatilities on Red River and International Bancshares 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 Red River with a short position of International Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red River and International Bancshares.
Diversification Opportunities for Red River and International Bancshares
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Red and International is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Red River Bancshares and International Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Bancshares and Red River 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 Red River Bancshares are associated (or correlated) with International Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Bancshares has no effect on the direction of Red River i.e., Red River and International Bancshares go up and down completely randomly.
Pair Corralation between Red River and International Bancshares
Given the investment horizon of 90 days Red River is expected to generate 1.31 times less return on investment than International Bancshares. But when comparing it to its historical volatility, Red River Bancshares is 2.01 times less risky than International Bancshares. It trades about 0.33 of its potential returns per unit of risk. International Bancshares is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 6,271 in International Bancshares on August 29, 2024 and sell it today you would earn a total of 1,117 from holding International Bancshares or generate 17.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Red River Bancshares vs. International Bancshares
Performance |
| Timeline |
| Red River Bancshares |
| International Bancshares |
Red River and International Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Red River and International Bancshares
The main advantage of trading using opposite Red River and International Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red River position performs unexpectedly, International Bancshares 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 International Bancshares will offset losses from the drop in International Bancshares' long position.| Red River vs. Home Federal Bancorp | Red River vs. Magyar Bancorp | Red River vs. Community West Bancshares | Red River vs. Rhinebeck Bancorp |
| International Bancshares vs. Home Federal Bancorp | International Bancshares vs. First Financial Northwest | International Bancshares vs. First Northwest Bancorp | International Bancshares vs. First Capital |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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