Correlation Between FS Bancorp and Eastern Michigan

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

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

Diversification Opportunities for FS Bancorp and Eastern Michigan

0.87

Correlation Coefficient

FS Bancorp  Eastern Michigan

Very poor diversification

The 3 months correlation between FXLG and Eastern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding FS Bancorp and Eastern Michigan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Michigan Fin and FS 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 FS Bancorp are associated (or correlated) with Eastern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Michigan Fin has no effect on the direction of FS Bancorp i.e., FS Bancorp and Eastern Michigan go up and down completely randomly.

Pair Corralation between FS Bancorp and Eastern Michigan

Given the investment horizon of 90 days FS Bancorp is expected to generate 2.62 times less return on investment than Eastern Michigan. But when comparing it to its historical volatility, FS Bancorp is 2.98 times less risky than Eastern Michigan. It trades about 0.22 of its potential returns per unit of risk. Eastern Michigan Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,050  in Eastern Michigan Financial on September 3, 2024 and sell it today you would earn a total of  491.00  from holding Eastern Michigan Financial or generate 16.1% return on investment over 90 days.

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

FS Bancorp  vs.  Eastern Michigan Financial

FS Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FS Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, FS Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Eastern Michigan Fin

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with FS Bancorp and Eastern Michigan

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

The idea behind FS Bancorp and Eastern Michigan Financial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.