Correlation Between Evans Bancorp and Heritage Commerce

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

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

Diversification Opportunities for Evans Bancorp and Heritage Commerce

0.69

Correlation Coefficient

Evans Bancorp  Heritage Commerce

Poor diversification

The 3 months correlation between Evans and Heritage is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Evans Bancorp and Heritage Commerce Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Commerce Corp and Evans 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 Evans Bancorp are associated (or correlated) with Heritage Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Commerce Corp has no effect on the direction of Evans Bancorp i.e., Evans Bancorp and Heritage Commerce go up and down completely randomly.

Pair Corralation between Evans Bancorp and Heritage Commerce

Given the investment horizon of 90 days Evans Bancorp is expected to generate 0.98 times more return on investment than Heritage Commerce. However, Evans Bancorp is 1.02 times less risky than Heritage Commerce. It trades about 0.18 of its potential returns per unit of risk. Heritage Commerce Corp is currently generating about 0.05 per unit of risk. If you would invest  3,490  in Evans Bancorp on August 30, 2024 and sell it today you would earn a total of  968.00  from holding Evans Bancorp or generate 27.74% return on investment over 90 days.

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

Evans Bancorp  vs.  Heritage Commerce Corp

Evans Bancorp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Evans Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Evans Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Heritage Commerce Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Heritage Commerce may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Evans Bancorp and Heritage Commerce

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

The idea behind Evans Bancorp and Heritage Commerce Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.