Correlation Between Regional Bank and Aberdeen Australia

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

Diversification Opportunities for Regional Bank and Aberdeen Australia

-0.4

Correlation Coefficient

Regional Bank  Aberdeen Australia

Very good diversification

The 3 months correlation between Regional and Aberdeen is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Aberdeen Australia Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Australia 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 Aberdeen Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Australia Equity has no effect on the direction of Regional Bank i.e., Regional Bank and Aberdeen Australia go up and down completely randomly.

Pair Corralation between Regional Bank and Aberdeen Australia

Assuming the 90 days horizon Regional Bank Fund is expected to generate 0.77 times more return on investment than Aberdeen Australia. However, Regional Bank Fund is 1.3 times less risky than Aberdeen Australia. It trades about 0.01 of its potential returns per unit of risk. Aberdeen Australia Equity is currently generating about -0.2 per unit of risk. If you would invest  3,096  in Regional Bank Fund on September 19, 2024 and sell it today you would earn a total of  4.00  from holding Regional Bank Fund or generate 0.13% return on investment over 90 days.

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

Regional Bank Fund  vs.  Aberdeen Australia Equity

Regional Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Regional Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aberdeen Australia Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aberdeen Australia Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Aberdeen Australia 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 Aberdeen Australia

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

The idea behind Regional Bank Fund and Aberdeen Australia Equity 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.