Correlation Between Main Street and Penns Woods

Can any of the company-specific risk be diversified away by investing in both Main Street and Penns Woods 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 Main Street and Penns Woods into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Main Street and Penns Woods

0.02

Correlation Coefficient

Main Street  Penns Woods

Significant diversification

The 3 months correlation between Main and Penns is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Financial and Penns Woods Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penns Woods Bancorp and Main Street 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 Main Street Financial are associated (or correlated) with Penns Woods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penns Woods Bancorp has no effect on the direction of Main Street i.e., Main Street and Penns Woods go up and down completely randomly.

Pair Corralation between Main Street and Penns Woods

Given the investment horizon of 90 days Main Street Financial is expected to generate 0.63 times more return on investment than Penns Woods. However, Main Street Financial is 1.58 times less risky than Penns Woods. It trades about -0.06 of its potential returns per unit of risk. Penns Woods Bancorp is currently generating about -0.06 per unit of risk. If you would invest  1,430  in Main Street Financial on December 27, 2024 and sell it today you would lose (48.00) from holding Main Street Financial or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Main Street Financial  vs.  Penns Woods Bancorp

Main Street Financial

Risk-Adjusted Performance

Very Weak

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

Penns Woods Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penns Woods Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Penns Woods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Main Street and Penns Woods

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

The idea behind Main Street Financial and Penns Woods Bancorp 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.