Correlation Between Potomac Bancshares and CCSB Financial

Can any of the company-specific risk be diversified away by investing in both Potomac Bancshares and CCSB 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 CCSB 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 CCSB Financial Corp, you can compare the effects of market volatilities on Potomac Bancshares and CCSB 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 CCSB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potomac Bancshares and CCSB Financial.

Diversification Opportunities for Potomac Bancshares and CCSB Financial

0.41

Correlation Coefficient

Potomac Bancshares  CCSB Financial

Very weak diversification

The 3 months correlation between Potomac and CCSB is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and CCSB Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CCSB Financial Corp 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 CCSB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CCSB Financial Corp has no effect on the direction of Potomac Bancshares i.e., Potomac Bancshares and CCSB Financial go up and down completely randomly.

Pair Corralation between Potomac Bancshares and CCSB Financial

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 0.89 times more return on investment than CCSB Financial. However, Potomac Bancshares is 1.12 times less risky than CCSB Financial. It trades about 0.01 of its potential returns per unit of risk. CCSB Financial Corp is currently generating about -0.02 per unit of risk. If you would invest  1,587  in Potomac Bancshares on December 2, 2024 and sell it today you would lose (12.00) from holding Potomac Bancshares or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	80.26%
Values	Daily Returns

Potomac Bancshares  vs.  CCSB Financial Corp

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.

CCSB Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CCSB Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Potomac Bancshares and CCSB Financial

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

The idea behind Potomac Bancshares and CCSB Financial Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.