Correlation Between Enterprise Bancorp and CF Bankshares

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

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

Diversification Opportunities for Enterprise Bancorp and CF Bankshares

0.84

Correlation Coefficient

Enterprise Bancorp  CF Bankshares

Very poor diversification

The 3 months correlation between Enterprise and CFBK is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and CF Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Bankshares 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 CF Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Bankshares has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and CF Bankshares go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and CF Bankshares

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.31 times more return on investment than CF Bankshares. However, Enterprise Bancorp is 1.31 times more volatile than CF Bankshares. It trades about 0.18 of its potential returns per unit of risk. CF Bankshares is currently generating about 0.15 per unit of risk. If you would invest  3,035  in Enterprise Bancorp on September 12, 2024 and sell it today you would earn a total of  1,240  from holding Enterprise Bancorp or generate 40.86% return on investment over 90 days.

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

Enterprise Bancorp  vs.  CF Bankshares

Enterprise Bancorp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 14 (%) 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.

CF Bankshares

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Bankshares are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, CF Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Bancorp and CF Bankshares

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

The idea behind Enterprise Bancorp and CF Bankshares 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.