Correlation Between Provident Bancorp and Erste Group

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

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

Diversification Opportunities for Provident Bancorp and Erste Group

0.53

Correlation Coefficient

Provident Bancorp  Erste Group

Very weak diversification

The 3 months correlation between Provident and Erste is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Provident Bancorp and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank and Provident 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 Provident Bancorp are associated (or correlated) with Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Provident Bancorp i.e., Provident Bancorp and Erste Group go up and down completely randomly.

Pair Corralation between Provident Bancorp and Erste Group

Given the investment horizon of 90 days Provident Bancorp is expected to generate 4.89 times less return on investment than Erste Group. But when comparing it to its historical volatility, Provident Bancorp is 1.25 times less risky than Erste Group. It trades about 0.02 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,517  in Erste Group Bank on October 15, 2024 and sell it today you would earn a total of  552.00  from holding Erste Group Bank or generate 10.01% return on investment over 90 days.

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

Provident Bancorp  vs.  Erste Group Bank

Provident Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Provident Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Erste Group Bank

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Erste Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Provident Bancorp and Erste Group

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

The idea behind Provident Bancorp and Erste Group Bank 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.