Correlation Between Independent Bank and Western New

Can any of the company-specific risk be diversified away by investing in both Independent Bank and Western New 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 Independent Bank and Western New into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Independent Bank Group and Western New England, you can compare the effects of market volatilities on Independent Bank and Western New 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 Independent Bank with a short position of Western New. Check out your portfolio center. Please also check ongoing floating volatility patterns of Independent Bank and Western New.

Diversification Opportunities for Independent Bank and Western New

0.86

Correlation Coefficient

Independent Bank  Western New

Very poor diversification

The 3 months correlation between Independent and Western is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank Group and Western New England in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western New England and Independent Bank 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 Independent Bank Group are associated (or correlated) with Western New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western New England has no effect on the direction of Independent Bank i.e., Independent Bank and Western New go up and down completely randomly.

Pair Corralation between Independent Bank and Western New

Given the investment horizon of 90 days Independent Bank is expected to generate 3.87 times less return on investment than Western New. But when comparing it to its historical volatility, Independent Bank Group is 1.37 times less risky than Western New. It trades about 0.12 of its potential returns per unit of risk. Western New England is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  890.00  in Western New England on September 15, 2024 and sell it today you would earn a total of  109.00  from holding Western New England or generate 12.25% return on investment over 90 days.

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

Independent Bank Group  vs.  Western New England

Independent Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Independent Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Western New England

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Independent Bank and Western New

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

The idea behind Independent Bank Group and Western New England 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.