Correlation Between Regional Management and Xp

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

Diversification Opportunities for Regional Management and Xp

-0.8

Correlation Coefficient

Regional Management  Xp

Pay attention - limited upside

The 3 months correlation between Regional and Xp is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Xp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xp Inc 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 Xp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xp Inc has no effect on the direction of Regional Management i.e., Regional Management and Xp go up and down completely randomly.

Pair Corralation between Regional Management and Xp

Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 0.87 times more return on investment than Xp. However, Regional Management Corp is 1.15 times less risky than Xp. It trades about -0.04 of its potential returns per unit of risk. Xp Inc is currently generating about -0.36 per unit of risk. If you would invest  3,392  in Regional Management Corp on October 8, 2024 and sell it today you would lose (62.00) from holding Regional Management Corp or give up 1.83% of portfolio value over 90 days.

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

Regional Management Corp  vs.  Xp Inc

Regional Management Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Management Corp are ranked lower than 5 (%) 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.

Xp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Regional Management and Xp

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

The idea behind Regional Management Corp and Xp Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.