Correlation Between ESSA Bancorp and US Century

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

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

Diversification Opportunities for ESSA Bancorp and US Century

0.72

Correlation Coefficient

ESSA Bancorp  US Century

Poor diversification

The 3 months correlation between ESSA and USCB is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and US Century Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Century Bank 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 US Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Century Bank has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and US Century go up and down completely randomly.

Pair Corralation between ESSA Bancorp and US Century

Given the investment horizon of 90 days ESSA Bancorp is expected to generate 2.22 times less return on investment than US Century. But when comparing it to its historical volatility, ESSA Bancorp is 1.48 times less risky than US Century. It trades about 0.11 of its potential returns per unit of risk. US Century Bank is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,711  in US Century Bank on October 21, 2024 and sell it today you would earn a total of  109.00  from holding US Century Bank or generate 6.37% return on investment over 90 days.

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

ESSA Bancorp  vs.  US Century Bank

ESSA Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ESSA Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ESSA Bancorp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

US Century Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Century Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, US Century sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESSA Bancorp and US Century

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

The idea behind ESSA Bancorp and US Century Bank 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.