Correlation Between Penns Woods and Main Street

Can any of the company-specific risk be diversified away by investing in both Penns Woods and Main Street 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 Penns Woods and Main Street into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Penns Woods and Main Street

0.41

Correlation Coefficient

Penns Woods  Main Street

Very weak diversification

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

Pair Corralation between Penns Woods and Main Street

Given the investment horizon of 90 days Penns Woods Bancorp is expected to under-perform the Main Street. But the stock apears to be less risky and, when comparing its historical volatility, Penns Woods Bancorp is 1.01 times less risky than Main Street. The stock trades about -0.01 of its potential returns per unit of risk. The Main Street Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,425  in Main Street Financial on November 29, 2024 and sell it today you would earn a total of  30.00  from holding Main Street Financial or generate 2.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Penns Woods Bancorp  vs.  Main Street Financial

Penns Woods Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penns Woods Bancorp 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Main Street Financial

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Main Street is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Penns Woods and Main Street

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

The idea behind Penns Woods Bancorp and Main Street 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.