Correlation Between Aozora Bank and Webster Financial

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

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

Diversification Opportunities for Aozora Bank and Webster Financial

0.63

Correlation Coefficient

Aozora Bank  Webster Financial

Poor diversification

The 3 months correlation between Aozora and Webster is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and Aozora 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 Aozora Bank 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 Aozora Bank i.e., Aozora Bank and Webster Financial go up and down completely randomly.

Pair Corralation between Aozora Bank and Webster Financial

Assuming the 90 days horizon Aozora Bank is expected to under-perform the Webster Financial. But the stock apears to be less risky and, when comparing its historical volatility, Aozora Bank is 1.36 times less risky than Webster Financial. The stock trades about -0.14 of its potential returns per unit of risk. The Webster Financial is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,216  in Webster Financial on December 29, 2024 and sell it today you would lose (356.00) from holding Webster Financial or give up 6.83% of portfolio value over 90 days.

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

Aozora Bank  vs.  Webster Financial

Aozora Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aozora Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Webster Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Webster Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aozora Bank and Webster Financial

The main advantage of trading using opposite Aozora Bank and Webster Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aozora Bank 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 Aozora Bank 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.