Correlation Between Potomac Bancshares and AmeriServ Financial

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

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

Diversification Opportunities for Potomac Bancshares and AmeriServ Financial

0.06

Correlation Coefficient

Potomac Bancshares  AmeriServ Financial

Significant diversification

The 3 months correlation between Potomac and AmeriServ is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and AmeriServ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmeriServ Financial and Potomac Bancshares 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 Potomac Bancshares are associated (or correlated) with AmeriServ Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmeriServ Financial has no effect on the direction of Potomac Bancshares i.e., Potomac Bancshares and AmeriServ Financial go up and down completely randomly.

Pair Corralation between Potomac Bancshares and AmeriServ Financial

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 1.19 times more return on investment than AmeriServ Financial. However, Potomac Bancshares is 1.19 times more volatile than AmeriServ Financial. It trades about -0.03 of its potential returns per unit of risk. AmeriServ Financial is currently generating about -0.04 per unit of risk. If you would invest  1,638  in Potomac Bancshares on December 27, 2024 and sell it today you would lose (88.00) from holding Potomac Bancshares or give up 5.37% of portfolio value over 90 days.

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

Potomac Bancshares  vs.  AmeriServ Financial

Potomac Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Potomac Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Potomac Bancshares is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

AmeriServ Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Potomac Bancshares and AmeriServ Financial

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

The idea behind Potomac Bancshares and AmeriServ Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.