Correlation Between ENB Financial and Potomac Bancshares

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

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

Diversification Opportunities for ENB Financial and Potomac Bancshares

0.29

Correlation Coefficient

ENB Financial  Potomac Bancshares

Modest diversification

The 3 months correlation between ENB and Potomac is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding ENB Financial Corp and Potomac Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potomac Bancshares and ENB 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 ENB Financial Corp are associated (or correlated) with Potomac Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potomac Bancshares has no effect on the direction of ENB Financial i.e., ENB Financial and Potomac Bancshares go up and down completely randomly.

Pair Corralation between ENB Financial and Potomac Bancshares

Given the investment horizon of 90 days ENB Financial Corp is expected to under-perform the Potomac Bancshares. But the otc stock apears to be less risky and, when comparing its historical volatility, ENB Financial Corp is 1.98 times less risky than Potomac Bancshares. The otc stock trades about -0.12 of its potential returns per unit of risk. The Potomac Bancshares is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,638  in Potomac Bancshares on December 27, 2024 and sell it today you would lose (88.00) from holding Potomac Bancshares or give up 5.37% of portfolio value over 90 days.

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

ENB Financial Corp  vs.  Potomac Bancshares

ENB Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ENB Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Potomac Bancshares

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ENB Financial and Potomac Bancshares

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

The idea behind ENB Financial Corp and Potomac Bancshares 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.