Correlation Between Regional Management and Dillards Capital

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

By analyzing existing cross correlation between Regional Management Corp and Dillards Capital Trust, you can compare the effects of market volatilities on Regional Management and Dillards Capital 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 Management with a short position of Dillards Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Management and Dillards Capital.

Diversification Opportunities for Regional Management and Dillards Capital

-0.23

Correlation Coefficient

Regional Management  Dillards Capital

Very good diversification

The 3 months correlation between Regional and Dillards is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Dillards Capital Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dillards Capital Trust and Regional Management 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 Management Corp are associated (or correlated) with Dillards Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dillards Capital Trust has no effect on the direction of Regional Management i.e., Regional Management and Dillards Capital go up and down completely randomly.

Pair Corralation between Regional Management and Dillards Capital

Allowing for the 90-day total investment horizon Regional Management Corp is expected to under-perform the Dillards Capital. In addition to that, Regional Management is 6.23 times more volatile than Dillards Capital Trust. It trades about -0.03 of its total potential returns per unit of risk. Dillards Capital Trust is currently generating about 0.09 per unit of volatility. If you would invest  2,535  in Dillards Capital Trust on December 29, 2024 and sell it today you would earn a total of  46.00  from holding Dillards Capital Trust or generate 1.81% return on investment over 90 days.

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

Regional Management Corp  vs.  Dillards Capital Trust

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Regional Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Dillards Capital Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dillards Capital Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, Dillards Capital is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Regional Management and Dillards Capital

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

The idea behind Regional Management Corp and Dillards Capital Trust 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.