Correlation Between Enterprise Bancorp and First Horizon

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

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

Diversification Opportunities for Enterprise Bancorp and First Horizon

-0.68

Correlation Coefficient

Enterprise Bancorp  First Horizon

Excellent diversification

The 3 months correlation between Enterprise and First is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and First Horizon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Horizon 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 First Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Horizon has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and First Horizon go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and First Horizon

Given the investment horizon of 90 days Enterprise Bancorp is expected to under-perform the First Horizon. In addition to that, Enterprise Bancorp is 1.18 times more volatile than First Horizon. It trades about -0.34 of its total potential returns per unit of risk. First Horizon is currently generating about -0.15 per unit of volatility. If you would invest  1,872  in First Horizon on October 10, 2024 and sell it today you would lose (78.00) from holding First Horizon or give up 4.17% of portfolio value over 90 days.

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

Enterprise Bancorp  vs.  First Horizon

Enterprise Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 9 (%) 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.

First Horizon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Horizon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Enterprise Bancorp and First Horizon

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

The idea behind Enterprise Bancorp and First Horizon 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.