Correlation Between Citizens Financial and Webster Financial

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

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

Diversification Opportunities for Citizens Financial and Webster Financial

0.97

Correlation Coefficient

Citizens Financial  Webster Financial

Almost no diversification

The 3 months correlation between Citizens and Webster is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and Citizens Financial 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 Citizens Financial Group 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 Citizens Financial i.e., Citizens Financial and Webster Financial go up and down completely randomly.

Pair Corralation between Citizens Financial and Webster Financial

Assuming the 90 days horizon Citizens Financial is expected to generate 2.53 times less return on investment than Webster Financial. But when comparing it to its historical volatility, Citizens Financial Group is 1.54 times less risky than Webster Financial. It trades about 0.05 of its potential returns per unit of risk. Webster Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,403  in Webster Financial on September 28, 2024 and sell it today you would earn a total of  897.00  from holding Webster Financial or generate 20.37% return on investment over 90 days.

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

Citizens Financial Group  vs.  Webster Financial

Citizens Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Citizens Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Webster Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Webster Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Webster Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Citizens Financial and Webster Financial

The main advantage of trading using opposite Citizens Financial and Webster Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial 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 Citizens Financial Group 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.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.