Correlation Between Regional Bank and Blue Chip

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

Diversification Opportunities for Regional Bank and Blue Chip

0.88

Correlation Coefficient

Regional Bank  Blue Chip

Very poor diversification

The 3 months correlation between Regional and Blue is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Blue Chip Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Growth 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 Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Growth has no effect on the direction of Regional Bank i.e., Regional Bank and Blue Chip go up and down completely randomly.

Pair Corralation between Regional Bank and Blue Chip

Assuming the 90 days horizon Regional Bank Fund is expected to generate 2.19 times more return on investment than Blue Chip. However, Regional Bank is 2.19 times more volatile than Blue Chip Growth. It trades about 0.11 of its potential returns per unit of risk. Blue Chip Growth is currently generating about 0.22 per unit of risk. If you would invest  2,709  in Regional Bank Fund on September 18, 2024 and sell it today you would earn a total of  374.00  from holding Regional Bank Fund or generate 13.81% return on investment over 90 days.

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

Regional Bank Fund  vs.  Blue Chip Growth

Regional Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Regional Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Blue Chip Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Chip Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Blue Chip showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Regional Bank and Blue Chip

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

The idea behind Regional Bank Fund and Blue Chip Growth 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.