Correlation Between Eastern Bankshares and Independent Bank

Can any of the company-specific risk be diversified away by investing in both Eastern Bankshares and Independent 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 Independent 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 Independent Bank, you can compare the effects of market volatilities on Eastern Bankshares and Independent 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 Independent Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Bankshares and Independent Bank.

Diversification Opportunities for Eastern Bankshares and Independent Bank

0.9

Correlation Coefficient

Eastern Bankshares  Independent Bank

Almost no diversification

The 3 months correlation between Eastern and Independent is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank 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 Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and Independent Bank go up and down completely randomly.

Pair Corralation between Eastern Bankshares and Independent Bank

Considering the 90-day investment horizon Eastern Bankshares is expected to under-perform the Independent Bank. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Bankshares is 1.01 times less risky than Independent Bank. The stock trades about -0.04 of its potential returns per unit of risk. The Independent Bank is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  6,411  in Independent Bank on December 30, 2024 and sell it today you would lose (92.00) from holding Independent Bank or give up 1.44% 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.  Independent Bank

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.

Independent Bank

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Eastern Bankshares and Independent Bank

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

The idea behind Eastern Bankshares and Independent 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.