Correlation Between ABBEY MORTGAGE and STERLING FINANCIAL

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

By analyzing existing cross correlation between ABBEY MORTGAGE BANK and STERLING FINANCIAL HOLDINGS, you can compare the effects of market volatilities on ABBEY MORTGAGE and STERLING 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 ABBEY MORTGAGE with a short position of STERLING FINANCIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABBEY MORTGAGE and STERLING FINANCIAL.

Diversification Opportunities for ABBEY MORTGAGE and STERLING FINANCIAL

0.24

Correlation Coefficient

ABBEY MORTGAGE  STERLING FINANCIAL

Modest diversification

The 3 months correlation between ABBEY and STERLING is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding ABBEY MORTGAGE BANK and STERLING FINANCIAL HOLDINGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STERLING FINANCIAL and ABBEY MORTGAGE 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 ABBEY MORTGAGE BANK are associated (or correlated) with STERLING FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STERLING FINANCIAL has no effect on the direction of ABBEY MORTGAGE i.e., ABBEY MORTGAGE and STERLING FINANCIAL go up and down completely randomly.

Pair Corralation between ABBEY MORTGAGE and STERLING FINANCIAL

Assuming the 90 days trading horizon ABBEY MORTGAGE is expected to generate 1.61 times less return on investment than STERLING FINANCIAL. But when comparing it to its historical volatility, ABBEY MORTGAGE BANK is 1.35 times less risky than STERLING FINANCIAL. It trades about 0.33 of its potential returns per unit of risk. STERLING FINANCIAL HOLDINGS is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  485.00  in STERLING FINANCIAL HOLDINGS on October 6, 2024 and sell it today you would earn a total of  145.00  from holding STERLING FINANCIAL HOLDINGS or generate 29.9% return on investment over 90 days.

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

ABBEY MORTGAGE BANK  vs.  STERLING FINANCIAL HOLDINGS

ABBEY MORTGAGE BANK

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABBEY MORTGAGE BANK are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ABBEY MORTGAGE exhibited solid returns over the last few months and may actually be approaching a breakup point.

STERLING FINANCIAL

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STERLING FINANCIAL HOLDINGS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, STERLING FINANCIAL displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABBEY MORTGAGE and STERLING FINANCIAL

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

The idea behind ABBEY MORTGAGE BANK and STERLING FINANCIAL HOLDINGS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.