Correlation Between Century Next and BEO Bancorp

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

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

Diversification Opportunities for Century Next and BEO Bancorp

-0.2

Correlation Coefficient

Century Next  BEO Bancorp

Good diversification

The 3 months correlation between Century and BEO is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Century Next Financial and BEO Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BEO Bancorp and Century Next 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 Century Next Financial are associated (or correlated) with BEO Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BEO Bancorp has no effect on the direction of Century Next i.e., Century Next and BEO Bancorp go up and down completely randomly.

Pair Corralation between Century Next and BEO Bancorp

Given the investment horizon of 90 days Century Next is expected to generate 1.11 times less return on investment than BEO Bancorp. But when comparing it to its historical volatility, Century Next Financial is 1.3 times less risky than BEO Bancorp. It trades about 0.12 of its potential returns per unit of risk. BEO Bancorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,310  in BEO Bancorp on September 4, 2024 and sell it today you would earn a total of  2,340  from holding BEO Bancorp or generate 44.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	79.27%
Values	Daily Returns

Century Next Financial  vs.  BEO Bancorp

Century Next Financial

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Next Financial are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Century Next showed solid returns over the last few months and may actually be approaching a breakup point.

BEO Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Century Next and BEO Bancorp

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

The idea behind Century Next Financial and BEO 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.