Correlation Between Eastern Michigan and FNB

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

By analyzing existing cross correlation between Eastern Michigan Financial and FNB Inc, you can compare the effects of market volatilities on Eastern Michigan and FNB 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 Eastern Michigan with a short position of FNB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Michigan and FNB.

Diversification Opportunities for Eastern Michigan and FNB

-0.69

Correlation Coefficient

Eastern Michigan  FNB

Excellent diversification

The 3 months correlation between Eastern and FNB is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Michigan Financial and FNB Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNB Inc and Eastern Michigan 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 Eastern Michigan Financial are associated (or correlated) with FNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNB Inc has no effect on the direction of Eastern Michigan i.e., Eastern Michigan and FNB go up and down completely randomly.

Pair Corralation between Eastern Michigan and FNB

Given the investment horizon of 90 days Eastern Michigan Financial is expected to generate 2.64 times more return on investment than FNB. However, Eastern Michigan is 2.64 times more volatile than FNB Inc. It trades about 0.12 of its potential returns per unit of risk. FNB Inc is currently generating about -0.12 per unit of risk. If you would invest  3,601  in Eastern Michigan Financial on December 28, 2024 and sell it today you would earn a total of  554.00  from holding Eastern Michigan Financial or generate 15.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.67%
Values	Daily Returns

Eastern Michigan Financial  vs.  FNB Inc

Eastern Michigan Fin

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Michigan Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Eastern Michigan displayed solid returns over the last few months and may actually be approaching a breakup point.

FNB Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days FNB Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, FNB is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Eastern Michigan and FNB

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

The idea behind Eastern Michigan Financial and FNB Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.