Correlation Between Aozora Bank and Andover Bancorp

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

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

Diversification Opportunities for Aozora Bank and Andover Bancorp

0.48

Correlation Coefficient

Aozora Bank  Andover Bancorp

Very weak diversification

The 3 months correlation between Aozora and Andover is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank Ltd and Andover Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Andover Bancorp and Aozora Bank 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 Aozora Bank Ltd are associated (or correlated) with Andover Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Andover Bancorp has no effect on the direction of Aozora Bank i.e., Aozora Bank and Andover Bancorp go up and down completely randomly.

Pair Corralation between Aozora Bank and Andover Bancorp

Assuming the 90 days horizon Aozora Bank Ltd is expected to under-perform the Andover Bancorp. In addition to that, Aozora Bank is 3.33 times more volatile than Andover Bancorp. It trades about -0.15 of its total potential returns per unit of risk. Andover Bancorp is currently generating about -0.06 per unit of volatility. If you would invest  2,000  in Andover Bancorp on December 28, 2024 and sell it today you would lose (35.00) from holding Andover Bancorp or give up 1.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.67%
Values	Daily Returns

Aozora Bank Ltd  vs.  Andover Bancorp

Aozora Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aozora Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Andover Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Andover Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Andover Bancorp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Aozora Bank and Andover Bancorp

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

The idea behind Aozora Bank Ltd and Andover 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.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.