Correlation Between Enterprise Bancorp and US Bancorp

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

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

Diversification Opportunities for Enterprise Bancorp and US Bancorp

0.42

Correlation Coefficient

Enterprise Bancorp  US Bancorp

Very weak diversification

The 3 months correlation between Enterprise and USB-PQ is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and US Bancorp go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and US Bancorp

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 1.89 times more return on investment than US Bancorp. However, Enterprise Bancorp is 1.89 times more volatile than US Bancorp. It trades about 0.0 of its potential returns per unit of risk. US Bancorp is currently generating about -0.1 per unit of risk. If you would invest  3,931  in Enterprise Bancorp on December 31, 2024 and sell it today you would lose (44.00) from holding Enterprise Bancorp or give up 1.12% of portfolio value over 90 days.

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

Enterprise Bancorp  vs.  US Bancorp

Enterprise Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enterprise Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enterprise Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

US Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, US Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Enterprise Bancorp and US Bancorp

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

The idea behind Enterprise Bancorp and US Bancorp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.