Correlation Between Regional Bank and Floating Rate

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

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

Diversification Opportunities for Regional Bank and Floating Rate

-0.6

Correlation Coefficient

Regional Bank  Floating Rate

Excellent diversification

The 3 months correlation between Regional and Floating is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Floating Rate Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floating Rate Income and Regional 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 Regional Bank Fund are associated (or correlated) with Floating Rate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floating Rate Income has no effect on the direction of Regional Bank i.e., Regional Bank and Floating Rate go up and down completely randomly.

Pair Corralation between Regional Bank and Floating Rate

Assuming the 90 days horizon Regional Bank Fund is expected to under-perform the Floating Rate. In addition to that, Regional Bank is 11.69 times more volatile than Floating Rate Income. It trades about -0.15 of its total potential returns per unit of risk. Floating Rate Income is currently generating about 0.09 per unit of volatility. If you would invest  759.00  in Floating Rate Income on December 5, 2024 and sell it today you would earn a total of  5.00  from holding Floating Rate Income or generate 0.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Regional Bank Fund  vs.  Floating Rate Income

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 basic 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.

Floating Rate Income

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Floating Rate Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Floating Rate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Regional Bank and Floating Rate

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

The idea behind Regional Bank Fund and Floating Rate Income 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.