Correlation Between Valley National and Webster Financial

Can any of the company-specific risk be diversified away by investing in both Valley National and Webster Financial 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 Valley National and Webster Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Valley National Bancorp and Webster Financial, you can compare the effects of market volatilities on Valley National and Webster Financial 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 Valley National with a short position of Webster Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valley National and Webster Financial.

Diversification Opportunities for Valley National and Webster Financial

-0.69

Correlation Coefficient

Valley National  Webster Financial

Excellent diversification

The 3 months correlation between Valley and Webster is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Valley National Bancorp and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and Valley National 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 Valley National Bancorp are associated (or correlated) with Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of Valley National i.e., Valley National and Webster Financial go up and down completely randomly.

Pair Corralation between Valley National and Webster Financial

Considering the 90-day investment horizon Valley National is expected to generate 1.68 times less return on investment than Webster Financial. In addition to that, Valley National is 1.44 times more volatile than Webster Financial. It trades about 0.01 of its total potential returns per unit of risk. Webster Financial is currently generating about 0.03 per unit of volatility. If you would invest  1,664  in Webster Financial on September 14, 2024 and sell it today you would earn a total of  377.00  from holding Webster Financial or generate 22.66% return on investment over 90 days.

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

Valley National Bancorp  vs.  Webster Financial

Valley National Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Valley National Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Valley National showed solid returns over the last few months and may actually be approaching a breakup point.

Webster Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Valley National and Webster Financial

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

The idea behind Valley National Bancorp and Webster Financial 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.