Correlation Between MT Bank and Webster Financial

Can any of the company-specific risk be diversified away by investing in both MT Bank and Webster Financial 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 MT Bank and Webster Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MT Bank and Webster Financial, you can compare the effects of market volatilities on MT Bank and Webster Financial 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 MT Bank with a short position of Webster Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of MT Bank and Webster Financial.

Diversification Opportunities for MT Bank and Webster Financial

0.54

Correlation Coefficient

MT Bank  Webster Financial

Very weak diversification

The 3 months correlation between MTB-PH and Webster is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding MT Bank and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and MT 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 MT Bank are associated (or correlated) with Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of MT Bank i.e., MT Bank and Webster Financial go up and down completely randomly.

Pair Corralation between MT Bank and Webster Financial

Assuming the 90 days trading horizon MT Bank is expected to generate 1.17 times less return on investment than Webster Financial. But when comparing it to its historical volatility, MT Bank is 1.4 times less risky than Webster Financial. It trades about 0.08 of its potential returns per unit of risk. Webster Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,557  in Webster Financial on October 5, 2024 and sell it today you would earn a total of  400.00  from holding Webster Financial or generate 25.69% return on investment over 90 days.

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

MT Bank  vs.  Webster Financial

MT Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MT Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, MT Bank is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Webster Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with MT Bank and Webster Financial

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

The idea behind MT Bank and Webster Financial 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.