Correlation Between Regional Bank and Vanguard Value

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

Diversification Opportunities for Regional Bank and Vanguard Value

0.66

Correlation Coefficient

Regional Bank  Vanguard Value

Poor diversification

The 3 months correlation between Regional and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Vanguard Value Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Value Index 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 Vanguard Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Value Index has no effect on the direction of Regional Bank i.e., Regional Bank and Vanguard Value go up and down completely randomly.

Pair Corralation between Regional Bank and Vanguard Value

Assuming the 90 days horizon Regional Bank Fund is expected to under-perform the Vanguard Value. In addition to that, Regional Bank is 1.77 times more volatile than Vanguard Value Index. It trades about -0.07 of its total potential returns per unit of risk. Vanguard Value Index is currently generating about 0.03 per unit of volatility. If you would invest  6,589  in Vanguard Value Index on December 30, 2024 and sell it today you would earn a total of  78.00  from holding Vanguard Value Index or generate 1.18% return on investment over 90 days.

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

Regional Bank Fund  vs.  Vanguard Value Index

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.

Vanguard Value Index

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Value 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 Vanguard Value

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

The idea behind Regional Bank Fund and Vanguard Value Index 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.