Correlation Between Berkshire Hills and National Capital

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

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

Diversification Opportunities for Berkshire Hills and National Capital

0.03

Correlation Coefficient

Berkshire Hills  National Capital

Significant diversification

The 3 months correlation between Berkshire and National is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hills Bancorp and National Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Capital Bank and Berkshire Hills 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 Berkshire Hills Bancorp are associated (or correlated) with National Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Capital Bank has no effect on the direction of Berkshire Hills i.e., Berkshire Hills and National Capital go up and down completely randomly.

Pair Corralation between Berkshire Hills and National Capital

Given the investment horizon of 90 days Berkshire Hills Bancorp is expected to under-perform the National Capital. But the stock apears to be less risky and, when comparing its historical volatility, Berkshire Hills Bancorp is 2.21 times less risky than National Capital. The stock trades about -0.1 of its potential returns per unit of risk. The National Capital Bank is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,500  in National Capital Bank on December 23, 2024 and sell it today you would lose (500.00) from holding National Capital Bank or give up 6.67% of portfolio value over 90 days.

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

Berkshire Hills Bancorp  vs.  National Capital Bank

Berkshire Hills Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Berkshire Hills Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

National Capital Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Capital Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, National Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Berkshire Hills and National Capital

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

The idea behind Berkshire Hills Bancorp and National Capital Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.