Correlation Between Enterprise Bancorp and Affinity Bancshares

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

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

Diversification Opportunities for Enterprise Bancorp and Affinity Bancshares

-0.33

Correlation Coefficient

Enterprise Bancorp  Affinity Bancshares

Very good diversification

The 3 months correlation between Enterprise and Affinity is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares and Enterprise 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 Enterprise Bancorp are associated (or correlated) with Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and Affinity Bancshares

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.06 times less return on investment than Affinity Bancshares. In addition to that, Enterprise Bancorp is 1.07 times more volatile than Affinity Bancshares. It trades about 0.04 of its total potential returns per unit of risk. Affinity Bancshares is currently generating about 0.05 per unit of volatility. If you would invest  1,311  in Affinity Bancshares on December 2, 2024 and sell it today you would earn a total of  663.00  from holding Affinity Bancshares or generate 50.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

Enterprise Bancorp  vs.  Affinity Bancshares

Enterprise Bancorp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Enterprise Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Affinity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Affinity Bancshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Enterprise Bancorp and Affinity Bancshares

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

The idea behind Enterprise Bancorp and Affinity Bancshares 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 Global Correlations module to find global opportunities by holding instruments from different markets.