Correlation Between Eagle Bancorp and Village Bank

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

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

Diversification Opportunities for Eagle Bancorp and Village Bank

0.75

Correlation Coefficient

Eagle Bancorp  Village Bank

Poor diversification

The 3 months correlation between Eagle and Village is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp and Village Bank and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Village Bank and Eagle 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 Eagle Bancorp are associated (or correlated) with Village Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Village Bank has no effect on the direction of Eagle Bancorp i.e., Eagle Bancorp and Village Bank go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Village Bank

Given the investment horizon of 90 days Eagle Bancorp is expected to under-perform the Village Bank. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Bancorp is 23.05 times less risky than Village Bank. The stock trades about -0.01 of its potential returns per unit of risk. The Village Bank and is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,392  in Village Bank and on October 5, 2024 and sell it today you would earn a total of  2,413  from holding Village Bank and or generate 44.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	78.14%
Values	Daily Returns

Eagle Bancorp  vs.  Village Bank and

Eagle Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Eagle Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Village Bank

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Village Bank and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Village Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eagle Bancorp and Village Bank

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

The idea behind Eagle Bancorp and Village Bank and 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 Global Correlations module to find global opportunities by holding instruments from different markets.