Correlation Between Unity Bancorp and Union Bankshares

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

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

Diversification Opportunities for Unity Bancorp and Union Bankshares

0.55

Correlation Coefficient

Unity Bancorp  Union Bankshares

Very weak diversification

The 3 months correlation between Unity and Union is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Unity Bancorp and Union Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Bankshares and Unity 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 Unity Bancorp are associated (or correlated) with Union Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Bankshares has no effect on the direction of Unity Bancorp i.e., Unity Bancorp and Union Bankshares go up and down completely randomly.

Pair Corralation between Unity Bancorp and Union Bankshares

Given the investment horizon of 90 days Unity Bancorp is expected to under-perform the Union Bankshares. In addition to that, Unity Bancorp is 1.01 times more volatile than Union Bankshares. It trades about -0.02 of its total potential returns per unit of risk. Union Bankshares is currently generating about 0.12 per unit of volatility. If you would invest  2,828  in Union Bankshares on December 27, 2024 and sell it today you would earn a total of  407.00  from holding Union Bankshares or generate 14.39% return on investment over 90 days.

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

Unity Bancorp  vs.  Union Bankshares

Unity Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unity Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Unity Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Union Bankshares

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Union Bankshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Union Bankshares sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unity Bancorp and Union Bankshares

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

The idea behind Unity Bancorp and Union 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.