Correlation Between UMB Financial and Webster Financial

Can any of the company-specific risk be diversified away by investing in both UMB 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 UMB 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 UMB Financial and Webster Financial, you can compare the effects of market volatilities on UMB 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 UMB Financial with a short position of Webster Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of UMB Financial and Webster Financial.

Diversification Opportunities for UMB Financial and Webster Financial

0.85

Correlation Coefficient

UMB Financial  Webster Financial

Very poor diversification

The 3 months correlation between UMB and Webster is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding UMB Financial and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial and UMB 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 UMB 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 UMB Financial i.e., UMB Financial and Webster Financial go up and down completely randomly.

Pair Corralation between UMB Financial and Webster Financial

Given the investment horizon of 90 days UMB Financial is expected to under-perform the Webster Financial. But the stock apears to be less risky and, when comparing its historical volatility, UMB Financial is 1.13 times less risky than Webster Financial. The stock trades about -0.1 of its potential returns per unit of risk. The Webster Financial is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,545  in Webster Financial on December 26, 2024 and sell it today you would lose (315.00) from holding Webster Financial or give up 5.68% of portfolio value over 90 days.

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

UMB Financial  vs.  Webster Financial

UMB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days UMB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains 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. In spite of comparatively stable fundamental drivers, Webster Financial is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with UMB Financial and Webster Financial

The main advantage of trading using opposite UMB Financial and Webster Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UMB 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 UMB 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.