Correlation Between Fulcrum Diversified and Regional Bank

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

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

Diversification Opportunities for Fulcrum Diversified and Regional Bank

0.73

Correlation Coefficient

Fulcrum Diversified  Regional Bank

Poor diversification

The 3 months correlation between Fulcrum and Regional is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Fulcrum Diversified 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 Fulcrum Diversified Absolute 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 Fulcrum Diversified i.e., Fulcrum Diversified and Regional Bank go up and down completely randomly.

Pair Corralation between Fulcrum Diversified and Regional Bank

Assuming the 90 days horizon Fulcrum Diversified Absolute is expected to generate 0.26 times more return on investment than Regional Bank. However, Fulcrum Diversified Absolute is 3.88 times less risky than Regional Bank. It trades about -0.09 of its potential returns per unit of risk. Regional Bank Fund is currently generating about -0.16 per unit of risk. If you would invest  958.00  in Fulcrum Diversified Absolute on December 5, 2024 and sell it today you would lose (20.00) from holding Fulcrum Diversified Absolute or give up 2.09% of portfolio value over 90 days.

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

Fulcrum Diversified Absolute  vs.  Regional Bank Fund

Fulcrum Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fulcrum Diversified Absolute has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Fulcrum Diversified 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

Very Weak

Over the last 90 days Regional Bank Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Fulcrum Diversified and Regional Bank

The main advantage of trading using opposite Fulcrum Diversified and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fulcrum Diversified 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 Fulcrum Diversified Absolute 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.