Correlation Between Eastern Michigan and QNB Corp

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

Diversification Opportunities for Eastern Michigan and QNB Corp

0.65

Correlation Coefficient

Eastern Michigan  QNB Corp

Poor diversification

The 3 months correlation between Eastern and QNB is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Michigan Financial and QNB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QNB Corp 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 QNB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QNB Corp has no effect on the direction of Eastern Michigan i.e., Eastern Michigan and QNB Corp go up and down completely randomly.

Pair Corralation between Eastern Michigan and QNB Corp

Given the investment horizon of 90 days Eastern Michigan Financial is expected to generate 3.16 times more return on investment than QNB Corp. However, Eastern Michigan is 3.16 times more volatile than QNB Corp. It trades about 0.12 of its potential returns per unit of risk. QNB Corp is currently generating about 0.11 per unit of risk. If you would invest  3,601  in Eastern Michigan Financial on December 27, 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 Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Eastern Michigan Financial  vs.  QNB Corp

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.

QNB Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in QNB Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, QNB Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eastern Michigan and QNB Corp

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

The idea behind Eastern Michigan Financial and QNB Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.