Correlation Between First Ottawa and Exchange Bankshares

Can any of the company-specific risk be diversified away by investing in both First Ottawa and Exchange Bankshares 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 Exchange Bankshares 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 Exchange Bankshares, you can compare the effects of market volatilities on First Ottawa and Exchange Bankshares 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 Exchange Bankshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Ottawa and Exchange Bankshares.

Diversification Opportunities for First Ottawa and Exchange Bankshares

0.9

Correlation Coefficient

First Ottawa  Exchange Bankshares

Almost no diversification

The 3 months correlation between First and Exchange is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Ottawa Bancshares and Exchange Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bankshares 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 Exchange Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bankshares has no effect on the direction of First Ottawa i.e., First Ottawa and Exchange Bankshares go up and down completely randomly.

Pair Corralation between First Ottawa and Exchange Bankshares

Given the investment horizon of 90 days First Ottawa is expected to generate 1.62 times less return on investment than Exchange Bankshares. But when comparing it to its historical volatility, First Ottawa Bancshares is 2.32 times less risky than Exchange Bankshares. It trades about 0.3 of its potential returns per unit of risk. Exchange Bankshares is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,000  in Exchange Bankshares on October 6, 2024 and sell it today you would earn a total of  790.00  from holding Exchange Bankshares or generate 19.75% return on investment over 90 days.

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

First Ottawa Bancshares  vs.  Exchange Bankshares

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.

Exchange Bankshares

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bankshares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Exchange Bankshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Ottawa and Exchange Bankshares

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

The idea behind First Ottawa Bancshares and Exchange Bankshares 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.