Correlation Between Cullman Bancorp and Meridian Bank

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

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

Diversification Opportunities for Cullman Bancorp and Meridian Bank

-0.68

Correlation Coefficient

Cullman Bancorp  Meridian Bank

Excellent diversification

The 3 months correlation between Cullman and Meridian is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Cullman Bancorp and Meridian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Bank and Cullman Bancorp 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 Cullman Bancorp are associated (or correlated) with Meridian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Bank has no effect on the direction of Cullman Bancorp i.e., Cullman Bancorp and Meridian Bank go up and down completely randomly.

Pair Corralation between Cullman Bancorp and Meridian Bank

Given the investment horizon of 90 days Cullman Bancorp is expected to under-perform the Meridian Bank. But the stock apears to be less risky and, when comparing its historical volatility, Cullman Bancorp is 1.69 times less risky than Meridian Bank. The stock trades about -0.02 of its potential returns per unit of risk. The Meridian Bank is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Meridian Bank on September 2, 2024 and sell it today you would earn a total of  240.00  from holding Meridian Bank or generate 16.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	79.03%
Values	Daily Returns

Cullman Bancorp  vs.  Meridian Bank

Cullman Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cullman Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Cullman Bancorp is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Meridian Bank

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Bank are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Meridian Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cullman Bancorp and Meridian Bank

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

The idea behind Cullman Bancorp and Meridian 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.