Correlation Between Eastern Bankshares and FVCBankcorp

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

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

Diversification Opportunities for Eastern Bankshares and FVCBankcorp

0.35

Correlation Coefficient

Eastern Bankshares  FVCBankcorp

Weak diversification

The 3 months correlation between Eastern and FVCBankcorp is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and FVCBankcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FVCBankcorp 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 FVCBankcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FVCBankcorp has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and FVCBankcorp go up and down completely randomly.

Pair Corralation between Eastern Bankshares and FVCBankcorp

Considering the 90-day investment horizon Eastern Bankshares is expected to generate 0.53 times more return on investment than FVCBankcorp. However, Eastern Bankshares is 1.89 times less risky than FVCBankcorp. It trades about -0.02 of its potential returns per unit of risk. FVCBankcorp is currently generating about -0.07 per unit of risk. If you would invest  1,845  in Eastern Bankshares on December 1, 2024 and sell it today you would lose (56.00) from holding Eastern Bankshares or give up 3.04% of portfolio value over 90 days.

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

Eastern Bankshares  vs.  FVCBankcorp

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.

FVCBankcorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days FVCBankcorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Eastern Bankshares and FVCBankcorp

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

The idea behind Eastern Bankshares and FVCBankcorp 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.