Correlation Between Foreign Trade and Southern California

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

By analyzing existing cross correlation between Foreign Trade Bank and Southern California Bancorp, you can compare the effects of market volatilities on Foreign Trade and Southern California 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 Foreign Trade with a short position of Southern California. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Trade and Southern California.

Diversification Opportunities for Foreign Trade and Southern California

0.23

Correlation Coefficient

Foreign Trade  Southern California

Modest diversification

The 3 months correlation between Foreign and Southern is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Bank and Southern California Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California and Foreign Trade 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 Foreign Trade Bank are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California has no effect on the direction of Foreign Trade i.e., Foreign Trade and Southern California go up and down completely randomly.

Pair Corralation between Foreign Trade and Southern California

Considering the 90-day investment horizon Foreign Trade Bank is expected to generate 0.77 times more return on investment than Southern California. However, Foreign Trade Bank is 1.3 times less risky than Southern California. It trades about 0.22 of its potential returns per unit of risk. Southern California Bancorp is currently generating about 0.17 per unit of risk. If you would invest  2,794  in Foreign Trade Bank on August 12, 2024 and sell it today you would earn a total of  578.00  from holding Foreign Trade Bank or generate 20.69% return on investment over 90 days.

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

Foreign Trade Bank  vs.  Southern California Bancorp

Foreign Trade Bank

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade showed solid returns over the last few months and may actually be approaching a breakup point.

Southern California

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southern California Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Southern California disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Foreign Trade and Southern California

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

The idea behind Foreign Trade Bank and Southern California Bancorp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.