Correlation Between Enterprise Bancorp and First Bancshares

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

Diversification Opportunities for Enterprise Bancorp and First Bancshares

0.81

Correlation Coefficient

Enterprise Bancorp  First Bancshares

Very poor diversification

The 3 months correlation between Enterprise and First is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First 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 First Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancshares has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and First Bancshares go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and First Bancshares

Given the investment horizon of 90 days Enterprise Bancorp is expected to under-perform the First Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, Enterprise Bancorp is 2.48 times less risky than First Bancshares. The stock trades about -0.39 of its potential returns per unit of risk. The First Bancshares is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  1,341  in First Bancshares on October 12, 2024 and sell it today you would lose (128.00) from holding First Bancshares or give up 9.55% of portfolio value over 90 days.

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

Enterprise Bancorp  vs.  First Bancshares

Enterprise Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 7 (%) 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 Bancshares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, First Bancshares may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Enterprise Bancorp and First Bancshares

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

The idea behind Enterprise Bancorp and First 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.