Correlation Between Regional Bank and Lifestyle

Can any of the company-specific risk be diversified away by investing in both Regional Bank and Lifestyle 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 Lifestyle 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 Lifestyle Ii Moderate, you can compare the effects of market volatilities on Regional Bank and Lifestyle 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 Lifestyle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Lifestyle.

Diversification Opportunities for Regional Bank and Lifestyle

0.32

Correlation Coefficient

Regional Bank  Lifestyle

Weak diversification

The 3 months correlation between Regional and Lifestyle is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Lifestyle Ii Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifestyle Ii Moderate 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 Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifestyle Ii Moderate has no effect on the direction of Regional Bank i.e., Regional Bank and Lifestyle go up and down completely randomly.

Pair Corralation between Regional Bank and Lifestyle

Assuming the 90 days horizon Regional Bank Fund is expected to generate 6.45 times more return on investment than Lifestyle. However, Regional Bank is 6.45 times more volatile than Lifestyle Ii Moderate. It trades about 0.15 of its potential returns per unit of risk. Lifestyle Ii Moderate is currently generating about 0.13 per unit of risk. If you would invest  2,660  in Regional Bank Fund on September 5, 2024 and sell it today you would earn a total of  510.00  from holding Regional Bank Fund or generate 19.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Regional Bank Fund  vs.  Lifestyle Ii Moderate

Regional Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Regional Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Lifestyle Ii Moderate

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lifestyle Ii Moderate are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Regional Bank and Lifestyle

The main advantage of trading using opposite Regional Bank and Lifestyle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Bank position performs unexpectedly, Lifestyle 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 Lifestyle will offset losses from the drop in Lifestyle's long position.

The idea behind Regional Bank Fund and Lifestyle Ii Moderate pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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.