Correlation Between Synchrony Financial and Webster Financial

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

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

Diversification Opportunities for Synchrony Financial and Webster Financial

0.89

Correlation Coefficient

Synchrony Financial  Webster Financial

Very poor diversification

The 3 months correlation between Synchrony and Webster is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and Synchrony Financial 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 Synchrony Financial are associated (or correlated) with Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of Synchrony Financial i.e., Synchrony Financial and Webster Financial go up and down completely randomly.

Pair Corralation between Synchrony Financial and Webster Financial

Assuming the 90 days horizon Synchrony Financial is expected to under-perform the Webster Financial. In addition to that, Synchrony Financial is 1.02 times more volatile than Webster Financial. It trades about -0.16 of its total potential returns per unit of risk. Webster Financial is currently generating about -0.07 per unit of volatility. If you would invest  5,266  in Webster Financial on December 23, 2024 and sell it today you would lose (526.00) from holding Webster Financial or give up 9.99% of portfolio value over 90 days.

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

Synchrony Financial  vs.  Webster Financial

Synchrony Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Webster Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Synchrony Financial and Webster Financial

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

The idea behind Synchrony Financial and Webster Financial 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..