Correlation Between Eastern Bankshares and Community Bank

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

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

Diversification Opportunities for Eastern Bankshares and Community Bank

0.91

Correlation Coefficient

Eastern Bankshares  Community Bank

Almost no diversification

The 3 months correlation between Eastern and Community is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and Community Bank System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Bank System and Eastern Bankshares 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 Eastern Bankshares are associated (or correlated) with Community Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Bank System has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and Community Bank go up and down completely randomly.

Pair Corralation between Eastern Bankshares and Community Bank

Considering the 90-day investment horizon Eastern Bankshares is expected to generate 1.05 times more return on investment than Community Bank. However, Eastern Bankshares is 1.05 times more volatile than Community Bank System. It trades about -0.04 of its potential returns per unit of risk. Community Bank System is currently generating about -0.05 per unit of risk. If you would invest  1,713  in Eastern Bankshares on December 29, 2024 and sell it today you would lose (81.00) from holding Eastern Bankshares or give up 4.73% of portfolio value over 90 days.

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

Eastern Bankshares  vs.  Community Bank System

Eastern Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Community Bank System

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Bank System has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Community Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Eastern Bankshares and Community Bank

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

The idea behind Eastern Bankshares and Community Bank System 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.