Correlation Between Potomac Bancshares and Bank of Utica

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

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

Diversification Opportunities for Potomac Bancshares and Bank of Utica

-0.28

Correlation Coefficient

Potomac Bancshares  Bank of Utica

Very good diversification

The 3 months correlation between Potomac and Bank is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and Bank of Utica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Utica 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 Bank of Utica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Utica has no effect on the direction of Potomac Bancshares i.e., Potomac Bancshares and Bank of Utica go up and down completely randomly.

Pair Corralation between Potomac Bancshares and Bank of Utica

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 5.26 times less return on investment than Bank of Utica. But when comparing it to its historical volatility, Potomac Bancshares is 2.0 times less risky than Bank of Utica. It trades about 0.01 of its potential returns per unit of risk. Bank of Utica is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  44,186  in Bank of Utica on December 2, 2024 and sell it today you would earn a total of  1,020  from holding Bank of Utica or generate 2.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	32.7%
Values	Daily Returns

Potomac Bancshares  vs.  Bank of Utica

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.

Bank of Utica

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Utica has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Potomac Bancshares and Bank of Utica

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

The idea behind Potomac Bancshares and Bank of Utica 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.