Correlation Between Tectonic Financial and Eastern Bankshares

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

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

Diversification Opportunities for Tectonic Financial and Eastern Bankshares

0.7

Correlation Coefficient

Tectonic Financial  Eastern Bankshares

Poor diversification

The 3 months correlation between Tectonic and Eastern is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tectonic Financial PR and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares and Tectonic 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 Tectonic Financial PR are associated (or correlated) with Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of Tectonic Financial i.e., Tectonic Financial and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Tectonic Financial and Eastern Bankshares

Assuming the 90 days horizon Tectonic Financial is expected to generate 4.75 times less return on investment than Eastern Bankshares. But when comparing it to its historical volatility, Tectonic Financial PR is 3.13 times less risky than Eastern Bankshares. It trades about 0.05 of its potential returns per unit of risk. Eastern Bankshares is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,673  in Eastern Bankshares on September 3, 2024 and sell it today you would earn a total of  191.00  from holding Eastern Bankshares or generate 11.42% return on investment over 90 days.

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

Tectonic Financial PR  vs.  Eastern Bankshares

Tectonic Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tectonic Financial PR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tectonic Financial is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Eastern Bankshares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Bankshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Eastern Bankshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tectonic Financial and Eastern Bankshares

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

The idea behind Tectonic Financial PR and Eastern Bankshares 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.