Correlation Between MF Bancorp and Community Bank

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

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

Diversification Opportunities for MF Bancorp and Community Bank

0.35

Correlation Coefficient

MF Bancorp  Community Bank

Weak diversification

The 3 months correlation between MFBP and Community is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding MF Bancorp and Community Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Bank and MF 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 MF Bancorp are associated (or correlated) with Community Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Bank has no effect on the direction of MF Bancorp i.e., MF Bancorp and Community Bank go up and down completely randomly.

Pair Corralation between MF Bancorp and Community Bank

Given the investment horizon of 90 days MF Bancorp is expected to under-perform the Community Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, MF Bancorp is 1.38 times less risky than Community Bank. The pink sheet trades about 0.0 of its potential returns per unit of risk. The Community Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  986.00  in Community Bank on October 13, 2024 and sell it today you would earn a total of  409.00  from holding Community Bank or generate 41.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.34%
Values	Daily Returns

MF Bancorp  vs.  Community Bank

MF Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MF Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, MF Bancorp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Community Bank

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Community Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak fundamental drivers, Community Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with MF Bancorp and Community Bank

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

The idea behind MF Bancorp and Community Bank 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.