Correlation Between Canadian Western and Provident Bancorp

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

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

Diversification Opportunities for Canadian Western and Provident Bancorp

0.29

Correlation Coefficient

Canadian Western  Provident Bancorp

Modest diversification

The 3 months correlation between Canadian and Provident is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Western Bank and Provident Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Bancorp and Canadian Western 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 Canadian Western Bank are associated (or correlated) with Provident Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Bancorp has no effect on the direction of Canadian Western i.e., Canadian Western and Provident Bancorp go up and down completely randomly.

Pair Corralation between Canadian Western and Provident Bancorp

Assuming the 90 days horizon Canadian Western Bank is expected to generate 1.78 times more return on investment than Provident Bancorp. However, Canadian Western is 1.78 times more volatile than Provident Bancorp. It trades about 0.06 of its potential returns per unit of risk. Provident Bancorp is currently generating about 0.05 per unit of risk. If you would invest  1,773  in Canadian Western Bank on September 21, 2024 and sell it today you would earn a total of  2,152  from holding Canadian Western Bank or generate 121.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.2%
Values	Daily Returns

Canadian Western Bank  vs.  Provident Bancorp

Canadian Western Bank

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Canadian Western Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Canadian Western is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Provident Bancorp

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Provident Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Canadian Western and Provident Bancorp

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

The idea behind Canadian Western Bank and Provident 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.