Correlation Between Enterprise Financial and Webster Financial

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

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

Diversification Opportunities for Enterprise Financial and Webster Financial

0.68

Correlation Coefficient

Enterprise Financial  Webster Financial

Poor diversification

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

Pair Corralation between Enterprise Financial and Webster Financial

Given the investment horizon of 90 days Enterprise Financial Services is expected to generate 1.48 times more return on investment than Webster Financial. However, Enterprise Financial is 1.48 times more volatile than Webster Financial. It trades about 0.02 of its potential returns per unit of risk. Webster Financial is currently generating about -0.01 per unit of risk. If you would invest  5,874  in Enterprise Financial Services on December 3, 2024 and sell it today you would earn a total of  43.00  from holding Enterprise Financial Services or generate 0.73% return on investment over 90 days.

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

Enterprise Financial Services  vs.  Webster Financial

Enterprise Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Enterprise Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Webster Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Webster Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Webster Financial is not utilizing all of its potentials. The new stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Enterprise Financial and Webster Financial

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

The idea behind Enterprise Financial Services and Webster Financial 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.