Correlation Between Regions Financial and Community Trust

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

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

Diversification Opportunities for Regions Financial and Community Trust

0.65

Correlation Coefficient

Regions Financial  Community Trust

Poor diversification

The 3 months correlation between Regions and Community is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Regions Financial and Community Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Trust Bancorp and Regions Financial 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 Regions Financial are associated (or correlated) with Community Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Trust Bancorp has no effect on the direction of Regions Financial i.e., Regions Financial and Community Trust go up and down completely randomly.

Pair Corralation between Regions Financial and Community Trust

Allowing for the 90-day total investment horizon Regions Financial is expected to under-perform the Community Trust. But the stock apears to be less risky and, when comparing its historical volatility, Regions Financial is 1.08 times less risky than Community Trust. The stock trades about -0.07 of its potential returns per unit of risk. The Community Trust Bancorp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  5,273  in Community Trust Bancorp on December 29, 2024 and sell it today you would lose (184.00) from holding Community Trust Bancorp or give up 3.49% of portfolio value over 90 days.

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

Regions Financial  vs.  Community Trust Bancorp

Regions Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regions Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Regions Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Community Trust Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Trust Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Community Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Regions Financial and Community Trust

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

The idea behind Regions Financial and Community Trust Bancorp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.