Correlation Between Target Retirement and Regional Bank
Can any of the company-specific risk be diversified away by investing in both Target Retirement 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 Target Retirement and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Regional Bank Fund, you can compare the effects of market volatilities on Target Retirement 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 Target Retirement with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Regional Bank.
Diversification Opportunities for Target Retirement and Regional Bank
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Target and Regional is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Target Retirement 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 Target Retirement 2040 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 Target Retirement i.e., Target Retirement and Regional Bank go up and down completely randomly.
Pair Corralation between Target Retirement and Regional Bank
Assuming the 90 days horizon Target Retirement is expected to generate 7.27 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Target Retirement 2040 is 5.45 times less risky than Regional Bank. It trades about 0.15 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,832 in Regional Bank Fund on August 31, 2024 and sell it today you would earn a total of 363.00 from holding Regional Bank Fund or generate 12.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target Retirement 2040 vs. Regional Bank Fund
Performance |
| Timeline |
| Target Retirement 2040 |
| Regional Bank |
Target Retirement and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target Retirement and Regional Bank
The main advantage of trading using opposite Target Retirement and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement 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.| Target Retirement vs. Ms Global Fixed | Target Retirement vs. Multisector Bond Sma | Target Retirement vs. Calamos Dynamic Convertible | Target Retirement vs. Ab Bond Inflation |
| Regional Bank vs. Vanguard Financials Index | Regional Bank vs. Regional Bank Fund | Regional Bank vs. T Rowe Price | Regional Bank vs. Financial Industries Fund |
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 Directory module to find actively traded commodities issued by global exchanges.
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