Correlation Between ST Bancorp and CNB Financial

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

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

Diversification Opportunities for ST Bancorp and CNB Financial

0.93

Correlation Coefficient

ST Bancorp  CNB Financial

Almost no diversification

The 3 months correlation between STBA and CNB is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ST Bancorp and CNB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNB Financial and ST 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 ST Bancorp are associated (or correlated) with CNB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNB Financial has no effect on the direction of ST Bancorp i.e., ST Bancorp and CNB Financial go up and down completely randomly.

Pair Corralation between ST Bancorp and CNB Financial

Given the investment horizon of 90 days ST Bancorp is expected to under-perform the CNB Financial. In addition to that, ST Bancorp is 1.09 times more volatile than CNB Financial. It trades about -0.18 of its total potential returns per unit of risk. CNB Financial is currently generating about -0.04 per unit of volatility. If you would invest  2,534  in CNB Financial on October 25, 2024 and sell it today you would lose (28.00) from holding CNB Financial or give up 1.1% of portfolio value over 90 days.

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

ST Bancorp  vs.  CNB Financial

ST Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ST Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ST Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CNB Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CNB Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ST Bancorp and CNB Financial

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

The idea behind ST Bancorp and CNB 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.