Correlation Between First Ottawa and Eagle Financial

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

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

Diversification Opportunities for First Ottawa and Eagle Financial

0.88

Correlation Coefficient

First Ottawa  Eagle Financial

Very poor diversification

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

Pair Corralation between First Ottawa and Eagle Financial

Given the investment horizon of 90 days First Ottawa Bancshares is expected to generate 0.52 times more return on investment than Eagle Financial. However, First Ottawa Bancshares is 1.91 times less risky than Eagle Financial. It trades about 0.07 of its potential returns per unit of risk. Eagle Financial Services is currently generating about 0.02 per unit of risk. If you would invest  9,400  in First Ottawa Bancshares on October 5, 2024 and sell it today you would earn a total of  3,600  from holding First Ottawa Bancshares or generate 38.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	86.6%
Values	Daily Returns

First Ottawa Bancshares  vs.  Eagle Financial Services

First Ottawa Bancshares

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa sustained solid returns over the last few months and may actually be approaching a breakup point.

Eagle Financial Services

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Financial Services are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Eagle Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Ottawa and Eagle Financial

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

The idea behind First Ottawa Bancshares and Eagle Financial Services 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.