Correlation Between Red River and BankUnited

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

By analyzing existing cross correlation between Red River Bancshares and BankUnited, you can compare the effects of market volatilities on Red River and BankUnited 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 Red River with a short position of BankUnited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red River and BankUnited.

Diversification Opportunities for Red River and BankUnited

0.93

Correlation Coefficient

Red River  BankUnited

Almost no diversification

The 3 months correlation between Red and BankUnited is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Red River Bancshares and BankUnited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankUnited and Red River 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 Red River Bancshares are associated (or correlated) with BankUnited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankUnited has no effect on the direction of Red River i.e., Red River and BankUnited go up and down completely randomly.

Pair Corralation between Red River and BankUnited

Given the investment horizon of 90 days Red River Bancshares is expected to generate 1.12 times more return on investment than BankUnited. However, Red River is 1.12 times more volatile than BankUnited. It trades about -0.24 of its potential returns per unit of risk. BankUnited is currently generating about -0.35 per unit of risk. If you would invest  6,051  in Red River Bancshares on September 25, 2024 and sell it today you would lose (510.00) from holding Red River Bancshares or give up 8.43% of portfolio value over 90 days.

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

Red River Bancshares  vs.  BankUnited

Red River Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Red River Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, Red River may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BankUnited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BankUnited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward-looking signals, BankUnited may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Red River and BankUnited

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

The idea behind Red River Bancshares and BankUnited 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.