Correlation Between Bank of Idaho and US Bancorp

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

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

Diversification Opportunities for Bank of Idaho and US Bancorp

0.74

Correlation Coefficient

Bank of Idaho  US Bancorp

Poor diversification

The 3 months correlation between Bank and USB-PH is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Idaho and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Bank of Idaho 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 Bank of Idaho are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Bank of Idaho i.e., Bank of Idaho and US Bancorp go up and down completely randomly.

Pair Corralation between Bank of Idaho and US Bancorp

Given the investment horizon of 90 days Bank of Idaho is expected to generate 7.23 times more return on investment than US Bancorp. However, Bank of Idaho is 7.23 times more volatile than US Bancorp. It trades about 0.13 of its potential returns per unit of risk. US Bancorp is currently generating about 0.07 per unit of risk. If you would invest  3,335  in Bank of Idaho on December 19, 2024 and sell it today you would earn a total of  1,327  from holding Bank of Idaho or generate 39.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.72%
Values	Daily Returns

Bank of Idaho  vs.  US Bancorp

Bank of Idaho

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Idaho are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Bank of Idaho exhibited solid returns over the last few months and may actually be approaching a breakup point.

US Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Bank of Idaho and US Bancorp

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

The idea behind Bank of Idaho and US 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..