Correlation Between Regional Management and SWK Holdings

Can any of the company-specific risk be diversified away by investing in both Regional Management and SWK Holdings 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 SWK Holdings 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 SWK Holdings, you can compare the effects of market volatilities on Regional Management and SWK Holdings 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 SWK Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Regional Management and SWK Holdings.

Diversification Opportunities for Regional Management and SWK Holdings

0.68

Correlation Coefficient

Regional Management  SWK Holdings

Poor diversification

The 3 months correlation between Regional and SWK is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and SWK Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWK Holdings 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 SWK Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWK Holdings has no effect on the direction of Regional Management i.e., Regional Management and SWK Holdings go up and down completely randomly.

Pair Corralation between Regional Management and SWK Holdings

Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 6.88 times more return on investment than SWK Holdings. However, Regional Management is 6.88 times more volatile than SWK Holdings. It trades about 0.02 of its potential returns per unit of risk. SWK Holdings is currently generating about 0.12 per unit of risk. If you would invest  3,159  in Regional Management Corp on October 22, 2024 and sell it today you would earn a total of  410.00  from holding Regional Management Corp or generate 12.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	65.52%
Values	Daily Returns

Regional Management Corp  vs.  SWK Holdings

Regional Management Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Management Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Regional Management displayed solid returns over the last few months and may actually be approaching a breakup point.

SWK Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SWK Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical indicators, SWK Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Regional Management and SWK Holdings

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

The idea behind Regional Management Corp and SWK Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.