Correlation Between Regional Bank and Wilshire Large

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

Diversification Opportunities for Regional Bank and Wilshire Large

0.91

Correlation Coefficient

Regional Bank  Wilshire Large

Almost no diversification

The 3 months correlation between Regional and Wilshire is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Wilshire Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire Large 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 Wilshire Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire Large has no effect on the direction of Regional Bank i.e., Regional Bank and Wilshire Large go up and down completely randomly.

Pair Corralation between Regional Bank and Wilshire Large

Assuming the 90 days horizon Regional Bank Fund is expected to generate 0.86 times more return on investment than Wilshire Large. However, Regional Bank Fund is 1.16 times less risky than Wilshire Large. It trades about -0.07 of its potential returns per unit of risk. Wilshire Large is currently generating about -0.08 per unit of risk. If you would invest  2,672  in Regional Bank Fund on December 30, 2024 and sell it today you would lose (172.00) from holding Regional Bank Fund or give up 6.44% of portfolio value over 90 days.

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

Regional Bank Fund  vs.  Wilshire Large

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

Wilshire Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wilshire Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Regional Bank and Wilshire Large

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

The idea behind Regional Bank Fund and Wilshire Large 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 Anywhere module to track or share privately all of your investments from the convenience of any device.