Correlation Between Regional Bank and Consumer Finance

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

Diversification Opportunities for Regional Bank and Consumer Finance

0.74

Correlation Coefficient

Regional Bank  Consumer Finance

Poor diversification

The 3 months correlation between Regional and Consumer is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Regional Bank Fund and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por 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 Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Regional Bank i.e., Regional Bank and Consumer Finance go up and down completely randomly.

Pair Corralation between Regional Bank and Consumer Finance

Assuming the 90 days horizon Regional Bank Fund is expected to under-perform the Consumer Finance. In addition to that, Regional Bank is 1.52 times more volatile than Consumer Finance Portfolio. It trades about -0.42 of its total potential returns per unit of risk. Consumer Finance Portfolio is currently generating about -0.1 per unit of volatility. If you would invest  2,018  in Consumer Finance Portfolio on October 7, 2024 and sell it today you would lose (54.00) from holding Consumer Finance Portfolio or give up 2.68% of portfolio value over 90 days.

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

Regional Bank Fund  vs.  Consumer Finance Portfolio

Regional Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Regional Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consumer Finance Por

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Finance Portfolio are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Consumer Finance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Regional Bank and Consumer Finance

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

The idea behind Regional Bank Fund and Consumer Finance Portfolio 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.