Correlation Between Northeast Community and ESSA Bancorp

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

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

Diversification Opportunities for Northeast Community and ESSA Bancorp

0.68

Correlation Coefficient

Northeast Community  ESSA Bancorp

Poor diversification

The 3 months correlation between Northeast and ESSA is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Community Bancorp and ESSA Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Bancorp and Northeast Community 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 Northeast Community Bancorp are associated (or correlated) with ESSA Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Bancorp has no effect on the direction of Northeast Community i.e., Northeast Community and ESSA Bancorp go up and down completely randomly.

Pair Corralation between Northeast Community and ESSA Bancorp

Given the investment horizon of 90 days Northeast Community Bancorp is expected to under-perform the ESSA Bancorp. In addition to that, Northeast Community is 1.55 times more volatile than ESSA Bancorp. It trades about -0.49 of its total potential returns per unit of risk. ESSA Bancorp is currently generating about -0.15 per unit of volatility. If you would invest  2,036  in ESSA Bancorp on September 25, 2024 and sell it today you would lose (86.00) from holding ESSA Bancorp or give up 4.22% of portfolio value over 90 days.

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

Northeast Community Bancorp  vs.  ESSA Bancorp

Northeast Community

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Northeast Community Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Northeast Community is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

ESSA Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ESSA Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ESSA Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northeast Community and ESSA Bancorp

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

The idea behind Northeast Community Bancorp and ESSA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.