Correlation Between STERLING FINANCIAL and ABBEY MORTGAGE

Can any of the company-specific risk be diversified away by investing in both STERLING FINANCIAL and ABBEY MORTGAGE 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 STERLING FINANCIAL and ABBEY MORTGAGE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STERLING FINANCIAL HOLDINGS and ABBEY MORTGAGE BANK, you can compare the effects of market volatilities on STERLING FINANCIAL and ABBEY MORTGAGE 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 STERLING FINANCIAL with a short position of ABBEY MORTGAGE. Check out your portfolio center. Please also check ongoing floating volatility patterns of STERLING FINANCIAL and ABBEY MORTGAGE.

Diversification Opportunities for STERLING FINANCIAL and ABBEY MORTGAGE

0.24

Correlation Coefficient

STERLING FINANCIAL  ABBEY MORTGAGE

Modest diversification

The 3 months correlation between STERLING and ABBEY is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding STERLING FINANCIAL HOLDINGS and ABBEY MORTGAGE BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABBEY MORTGAGE BANK and STERLING FINANCIAL 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 STERLING FINANCIAL HOLDINGS are associated (or correlated) with ABBEY MORTGAGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABBEY MORTGAGE BANK has no effect on the direction of STERLING FINANCIAL i.e., STERLING FINANCIAL and ABBEY MORTGAGE go up and down completely randomly.

Pair Corralation between STERLING FINANCIAL and ABBEY MORTGAGE

Assuming the 90 days trading horizon STERLING FINANCIAL HOLDINGS is expected to generate 1.35 times more return on investment than ABBEY MORTGAGE. However, STERLING FINANCIAL is 1.35 times more volatile than ABBEY MORTGAGE BANK. It trades about 0.39 of its potential returns per unit of risk. ABBEY MORTGAGE BANK is currently generating about 0.33 per unit of risk. If you would invest  485.00  in STERLING FINANCIAL HOLDINGS on October 6, 2024 and sell it today you would earn a total of  145.00  from holding STERLING FINANCIAL HOLDINGS or generate 29.9% return on investment over 90 days.

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

STERLING FINANCIAL HOLDINGS  vs.  ABBEY MORTGAGE BANK

STERLING FINANCIAL

Risk-Adjusted Performance

9 of 100

OK

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

ABBEY MORTGAGE BANK

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABBEY MORTGAGE BANK are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, ABBEY MORTGAGE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STERLING FINANCIAL and ABBEY MORTGAGE

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

The idea behind STERLING FINANCIAL HOLDINGS and ABBEY MORTGAGE 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.