Correlation Between Solvay Bank and Eastern Michigan

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

By analyzing existing cross correlation between Solvay Bank Corp and Eastern Michigan Financial, you can compare the effects of market volatilities on Solvay Bank and Eastern Michigan 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 Solvay Bank with a short position of Eastern Michigan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solvay Bank and Eastern Michigan.

Diversification Opportunities for Solvay Bank and Eastern Michigan

0.56

Correlation Coefficient

Solvay Bank  Eastern Michigan

Very weak diversification

The 3 months correlation between Solvay and Eastern is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Solvay Bank Corp and Eastern Michigan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Michigan Fin and Solvay Bank 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 Solvay Bank Corp are associated (or correlated) with Eastern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Michigan Fin has no effect on the direction of Solvay Bank i.e., Solvay Bank and Eastern Michigan go up and down completely randomly.

Pair Corralation between Solvay Bank and Eastern Michigan

Given the investment horizon of 90 days Solvay Bank is expected to generate 1.01 times less return on investment than Eastern Michigan. But when comparing it to its historical volatility, Solvay Bank Corp is 1.11 times less risky than Eastern Michigan. It trades about 0.13 of its potential returns per unit of risk. Eastern Michigan Financial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,601  in Eastern Michigan Financial on December 28, 2024 and sell it today you would earn a total of  554.00  from holding Eastern Michigan Financial or generate 15.38% return on investment over 90 days.

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

Solvay Bank Corp  vs.  Eastern Michigan Financial

Solvay Bank Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay Bank Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, Solvay Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Eastern Michigan Fin

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Michigan Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Eastern Michigan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solvay Bank and Eastern Michigan

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

The idea behind Solvay Bank Corp and Eastern Michigan 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.

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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..