Correlation Between Strategic Income and Regional Bank

Can any of the company-specific risk be diversified away by investing in both Strategic Income 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 Strategic Income and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Strategic Income Opportunities and Regional Bank Fund, you can compare the effects of market volatilities on Strategic Income 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 Strategic Income with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Income and Regional Bank.

Diversification Opportunities for Strategic Income and Regional Bank

-0.54

Correlation Coefficient

Strategic Income  Regional Bank

Excellent diversification

The 3 months correlation between Strategic and Regional is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Income Opportunities and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Strategic Income 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 Strategic Income Opportunities 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 Strategic Income i.e., Strategic Income and Regional Bank go up and down completely randomly.

Pair Corralation between Strategic Income and Regional Bank

Assuming the 90 days horizon Strategic Income is expected to generate 90.75 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Strategic Income Opportunities is 11.71 times less risky than Regional Bank. It trades about 0.02 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,847  in Regional Bank Fund on September 4, 2024 and sell it today you would earn a total of  538.00  from holding Regional Bank Fund or generate 18.9% return on investment over 90 days.

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

Strategic Income Opportunities  vs.  Regional Bank Fund

Strategic Income Opp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Income Opportunities are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Strategic Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 basic indicators, Regional Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Strategic Income and Regional Bank

The main advantage of trading using opposite Strategic Income and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Income 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.

The idea behind Strategic Income Opportunities and Regional Bank Fund 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.