Correlation Between Grand River and Eastern Michigan

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

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

Diversification Opportunities for Grand River and Eastern Michigan

-0.59

Correlation Coefficient

Grand River  Eastern Michigan

Excellent diversification

The 3 months correlation between Grand and Eastern is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Grand River Commerce 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 Grand River 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 Grand River Commerce 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 Grand River i.e., Grand River and Eastern Michigan go up and down completely randomly.

Pair Corralation between Grand River and Eastern Michigan

Given the investment horizon of 90 days Grand River is expected to generate 21.59 times less return on investment than Eastern Michigan. In addition to that, Grand River is 2.08 times more volatile than Eastern Michigan Financial. It trades about 0.0 of its total potential returns per unit of risk. Eastern Michigan Financial is currently generating about 0.14 per unit of volatility. If you would invest  3,200  in Eastern Michigan Financial on September 13, 2024 and sell it today you would earn a total of  350.00  from holding Eastern Michigan Financial or generate 10.94% return on investment over 90 days.

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

Grand River Commerce  vs.  Eastern Michigan Financial

Grand River Commerce

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Grand River Commerce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Grand River is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Eastern Michigan Fin

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Michigan Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Eastern Michigan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Grand River and Eastern Michigan

The main advantage of trading using opposite Grand River and Eastern Michigan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand River 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 Grand River Commerce 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.