Correlation Between Enterprise Financial and LCNB

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

Diversification Opportunities for Enterprise Financial and LCNB

0.54

Correlation Coefficient

Enterprise Financial  LCNB

Very weak diversification

The 3 months correlation between Enterprise and LCNB is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Financial Services and LCNB Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LCNB 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 LCNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LCNB has no effect on the direction of Enterprise Financial i.e., Enterprise Financial and LCNB go up and down completely randomly.

Pair Corralation between Enterprise Financial and LCNB

Assuming the 90 days horizon Enterprise Financial Services is expected to under-perform the LCNB. But the preferred stock apears to be less risky and, when comparing its historical volatility, Enterprise Financial Services is 1.71 times less risky than LCNB. The preferred stock trades about -0.03 of its potential returns per unit of risk. The LCNB Corporation is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,485  in LCNB Corporation on December 29, 2024 and sell it today you would earn a total of  12.00  from holding LCNB Corporation or generate 0.81% return on investment over 90 days.

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

Enterprise Financial Services  vs.  LCNB Corp.

Enterprise Financial

Risk-Adjusted Performance

Very Weak

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

LCNB

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LCNB Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LCNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Enterprise Financial and LCNB

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

The idea behind Enterprise Financial Services and LCNB Corporation 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.