Correlation Between OP Bancorp and Financial Institutions

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

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

Diversification Opportunities for OP Bancorp and Financial Institutions

0.32

Correlation Coefficient

OP Bancorp  Financial Institutions

Weak diversification

The 3 months correlation between OPBK and Financial is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding OP Bancorp and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions and OP 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 OP Bancorp are associated (or correlated) with Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of OP Bancorp i.e., OP Bancorp and Financial Institutions go up and down completely randomly.

Pair Corralation between OP Bancorp and Financial Institutions

Given the investment horizon of 90 days OP Bancorp is expected to under-perform the Financial Institutions. In addition to that, OP Bancorp is 1.8 times more volatile than Financial Institutions. It trades about -0.14 of its total potential returns per unit of risk. Financial Institutions is currently generating about -0.06 per unit of volatility. If you would invest  2,670  in Financial Institutions on December 29, 2024 and sell it today you would lose (170.00) from holding Financial Institutions or give up 6.37% of portfolio value over 90 days.

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

OP Bancorp  vs.  Financial Institutions

OP Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days OP Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Financial Institutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Institutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Financial Institutions is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with OP Bancorp and Financial Institutions

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

The idea behind OP Bancorp and Financial Institutions 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.