Correlation Between Two Rivers and Lyons Bancorp

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

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

Diversification Opportunities for Two Rivers and Lyons Bancorp

0.66

Correlation Coefficient

Two Rivers  Lyons Bancorp

Poor diversification

The 3 months correlation between Two and Lyons is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Two Rivers Financial and Lyons Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyons Bancorp and Two Rivers 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 Two Rivers Financial are associated (or correlated) with Lyons Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyons Bancorp has no effect on the direction of Two Rivers i.e., Two Rivers and Lyons Bancorp go up and down completely randomly.

Pair Corralation between Two Rivers and Lyons Bancorp

Given the investment horizon of 90 days Two Rivers is expected to generate 1.44 times less return on investment than Lyons Bancorp. But when comparing it to its historical volatility, Two Rivers Financial is 1.64 times less risky than Lyons Bancorp. It trades about 0.03 of its potential returns per unit of risk. Lyons Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,060  in Lyons Bancorp on December 26, 2024 and sell it today you would earn a total of  37.00  from holding Lyons Bancorp or generate 0.91% return on investment over 90 days.

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

Two Rivers Financial  vs.  Lyons Bancorp

Two Rivers Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Two Rivers Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Two Rivers is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Lyons Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lyons Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Lyons Bancorp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Two Rivers and Lyons Bancorp

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

The idea behind Two Rivers Financial and Lyons Bancorp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.