Correlation Between Webster Financial and OtelloASA

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

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

Diversification Opportunities for Webster Financial and OtelloASA

0.04

Correlation Coefficient

Webster Financial  OtelloASA

Significant diversification

The 3 months correlation between Webster and OtelloASA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Webster Financial and Otello ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otello ASA and Webster 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 Webster Financial are associated (or correlated) with OtelloASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otello ASA has no effect on the direction of Webster Financial i.e., Webster Financial and OtelloASA go up and down completely randomly.

Pair Corralation between Webster Financial and OtelloASA

Assuming the 90 days horizon Webster Financial is expected to generate 2.19 times more return on investment than OtelloASA. However, Webster Financial is 2.19 times more volatile than Otello ASA. It trades about 0.14 of its potential returns per unit of risk. Otello ASA is currently generating about -0.03 per unit of risk. If you would invest  4,701  in Webster Financial on October 24, 2024 and sell it today you would earn a total of  1,099  from holding Webster Financial or generate 23.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Webster Financial  vs.  Otello ASA

Webster Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Webster Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Webster Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Otello ASA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Otello ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, OtelloASA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Webster Financial and OtelloASA

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

The idea behind Webster Financial and Otello ASA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.