Correlation Between Regional Bank and Global Absolute

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

Diversification Opportunities for Regional Bank and Global Absolute

-0.06

Correlation Coefficient

Regional Bank  Global Absolute

Good diversification

The 3 months correlation between REGIONAL and Global is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Global Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Absolute Return 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 Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Absolute Return has no effect on the direction of Regional Bank i.e., Regional Bank and Global Absolute go up and down completely randomly.

Pair Corralation between Regional Bank and Global Absolute

Assuming the 90 days horizon Regional Bank Fund is expected to generate 6.16 times more return on investment than Global Absolute. However, Regional Bank is 6.16 times more volatile than Global Absolute Return. It trades about 0.13 of its potential returns per unit of risk. Global Absolute Return is currently generating about 0.07 per unit of risk. If you would invest  2,879  in Regional Bank Fund on September 1, 2024 and sell it today you would earn a total of  506.00  from holding Regional Bank Fund or generate 17.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Regional Bank Fund  vs.  Global Absolute Return

Regional Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Regional Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Global Absolute Return

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Absolute Return are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Global Absolute 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 Global Absolute

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

The idea behind Regional Bank Fund and Global Absolute Return 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.