Correlation Between Us Government and Regional Bank

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

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

Diversification Opportunities for Us Government and Regional Bank

-0.76

Correlation Coefficient

Us Government  Regional Bank

Pay attention - limited upside

The 3 months correlation between RGVJX and Regional is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Securities and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Us Government 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 Us Government Securities are associated (or correlated) with Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of Us Government i.e., Us Government and Regional Bank go up and down completely randomly.

Pair Corralation between Us Government and Regional Bank

Assuming the 90 days horizon Us Government Securities is expected to under-perform the Regional Bank. But the mutual fund apears to be less risky and, when comparing its historical volatility, Us Government Securities is 7.03 times less risky than Regional Bank. The mutual fund trades about -0.14 of its potential returns per unit of risk. The Regional Bank Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,813  in Regional Bank Fund on September 13, 2024 and sell it today you would earn a total of  509.00  from holding Regional Bank Fund or generate 18.09% return on investment over 90 days.

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

Us Government Securities  vs.  Regional Bank Fund

Us Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Regional Bank

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Regional Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Us Government and Regional Bank

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

The idea behind Us Government Securities and Regional Bank Fund 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.