Correlation Between Regional Bank and Global Equity

Can any of the company-specific risk be diversified away by investing in both Regional Bank and Global Equity 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 Global Equity 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 Global Equity Fund, you can compare the effects of market volatilities on Regional Bank and Global Equity 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 Global Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Bank and Global Equity.

Diversification Opportunities for Regional Bank and Global Equity

0.37

Correlation Coefficient

Regional Bank  Global Equity

Weak diversification

The 3 months correlation between Regional and Global is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Global Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Equity 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 Global Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Equity has no effect on the direction of Regional Bank i.e., Regional Bank and Global Equity go up and down completely randomly.

Pair Corralation between Regional Bank and Global Equity

Assuming the 90 days horizon Regional Bank Fund is expected to under-perform the Global Equity. In addition to that, Regional Bank is 3.01 times more volatile than Global Equity Fund. It trades about -0.44 of its total potential returns per unit of risk. Global Equity Fund is currently generating about -0.29 per unit of volatility. If you would invest  1,374  in Global Equity Fund on September 23, 2024 and sell it today you would lose (50.00) from holding Global Equity Fund or give up 3.64% of portfolio value over 90 days.

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

Regional Bank Fund  vs.  Global Equity Fund

Regional Bank

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Regional Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Equity 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Regional Bank and Global Equity

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

The idea behind Regional Bank Fund and Global Equity 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.