Correlation Between North American and Regions Financial

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

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

Diversification Opportunities for North American and Regions Financial

0.73

Correlation Coefficient

North American  Regions Financial

Poor diversification

The 3 months correlation between North and Regions is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Regions Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regions Financial and North American 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 North American Construction are associated (or correlated) with Regions Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regions Financial has no effect on the direction of North American i.e., North American and Regions Financial go up and down completely randomly.

Pair Corralation between North American and Regions Financial

Assuming the 90 days horizon North American Construction is expected to generate 1.38 times more return on investment than Regions Financial. However, North American is 1.38 times more volatile than Regions Financial. It trades about 0.05 of its potential returns per unit of risk. Regions Financial is currently generating about 0.04 per unit of risk. If you would invest  1,157  in North American Construction on September 20, 2024 and sell it today you would earn a total of  843.00  from holding North American Construction or generate 72.86% return on investment over 90 days.

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

North American Construction  vs.  Regions Financial

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Regions Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Regions Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Regions Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with North American and Regions Financial

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

The idea behind North American Construction and Regions 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.