Correlation Between Summit Bancshares and American Riviera

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

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

Diversification Opportunities for Summit Bancshares and American Riviera

-0.44

Correlation Coefficient

Summit Bancshares  American Riviera

Very good diversification

The 3 months correlation between Summit and American is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Summit Bancshares and American Riviera Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Riviera Bank and Summit 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 Summit Bancshares are associated (or correlated) with American Riviera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Riviera Bank has no effect on the direction of Summit Bancshares i.e., Summit Bancshares and American Riviera go up and down completely randomly.

Pair Corralation between Summit Bancshares and American Riviera

Given the investment horizon of 90 days Summit Bancshares is expected to generate 3.08 times more return on investment than American Riviera. However, Summit Bancshares is 3.08 times more volatile than American Riviera Bank. It trades about 0.04 of its potential returns per unit of risk. American Riviera Bank is currently generating about -0.12 per unit of risk. If you would invest  4,421  in Summit Bancshares on December 29, 2024 and sell it today you would earn a total of  129.00  from holding Summit Bancshares or generate 2.92% return on investment over 90 days.

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

Summit Bancshares  vs.  American Riviera Bank

Summit Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Bancshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Summit Bancshares is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

American Riviera Bank

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Summit Bancshares and American Riviera

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

The idea behind Summit Bancshares and American Riviera 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.