Correlation Between Oak Valley and Enterprise Bancorp

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

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

Diversification Opportunities for Oak Valley and Enterprise Bancorp

0.73

Correlation Coefficient

Oak Valley  Enterprise Bancorp

Poor diversification

The 3 months correlation between Oak and Enterprise is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Oak Valley Bancorp and Enterprise Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Bancorp and Oak Valley 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 Oak Valley Bancorp are associated (or correlated) with Enterprise Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Bancorp has no effect on the direction of Oak Valley i.e., Oak Valley and Enterprise Bancorp go up and down completely randomly.

Pair Corralation between Oak Valley and Enterprise Bancorp

Given the investment horizon of 90 days Oak Valley is expected to generate 3.18 times less return on investment than Enterprise Bancorp. But when comparing it to its historical volatility, Oak Valley Bancorp is 1.41 times less risky than Enterprise Bancorp. It trades about 0.06 of its potential returns per unit of risk. Enterprise Bancorp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,107  in Enterprise Bancorp on October 6, 2024 and sell it today you would earn a total of  819.00  from holding Enterprise Bancorp or generate 26.36% return on investment over 90 days.

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

Oak Valley Bancorp  vs.  Enterprise Bancorp

Oak Valley Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oak Valley Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, Oak Valley may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Enterprise Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Enterprise Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oak Valley and Enterprise Bancorp

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

The idea behind Oak Valley Bancorp and Enterprise 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.