Correlation Between ESSA Bancorp and Banner

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

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

Diversification Opportunities for ESSA Bancorp and Banner

0.88

Correlation Coefficient

ESSA Bancorp  Banner

Very poor diversification

The 3 months correlation between ESSA and Banner is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and Banner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banner and ESSA 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 ESSA Bancorp are associated (or correlated) with Banner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banner has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and Banner go up and down completely randomly.

Pair Corralation between ESSA Bancorp and Banner

Given the investment horizon of 90 days ESSA Bancorp is expected to generate 2.01 times less return on investment than Banner. In addition to that, ESSA Bancorp is 1.02 times more volatile than Banner. It trades about 0.01 of its total potential returns per unit of risk. Banner is currently generating about 0.03 per unit of volatility. If you would invest  5,794  in Banner on September 28, 2024 and sell it today you would earn a total of  1,020  from holding Banner or generate 17.6% return on investment over 90 days.

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

ESSA Bancorp  vs.  Banner

ESSA Bancorp

Risk-Adjusted Performance

1 of 100

Weak

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

Banner

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banner are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Banner reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESSA Bancorp and Banner

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

The idea behind ESSA Bancorp and Banner 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.