Correlation Between Regional Bank and Fundamental Large

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

Diversification Opportunities for Regional Bank and Fundamental Large

0.91

Correlation Coefficient

Regional Bank  Fundamental Large

Almost no diversification

The 3 months correlation between Regional and Fundamental is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap 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 Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Regional Bank i.e., Regional Bank and Fundamental Large go up and down completely randomly.

Pair Corralation between Regional Bank and Fundamental Large

Assuming the 90 days horizon Regional Bank Fund is expected to generate 2.15 times more return on investment than Fundamental Large. However, Regional Bank is 2.15 times more volatile than Fundamental Large Cap. It trades about 0.16 of its potential returns per unit of risk. Fundamental Large Cap is currently generating about 0.11 per unit of risk. If you would invest  2,206  in Regional Bank Fund on September 14, 2024 and sell it today you would earn a total of  920.00  from holding Regional Bank Fund or generate 41.7% 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.  Fundamental Large Cap

Regional Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 10 (%) 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.

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Large Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fundamental Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Regional Bank and Fundamental Large

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

The idea behind Regional Bank Fund and Fundamental Large Cap 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.