Correlation Between Unity Bancorp and US Bancorp

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

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

Diversification Opportunities for Unity Bancorp and US Bancorp

0.93

Correlation Coefficient

Unity Bancorp  US Bancorp

Almost no diversification

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

Pair Corralation between Unity Bancorp and US Bancorp

Given the investment horizon of 90 days Unity Bancorp is expected to under-perform the US Bancorp. In addition to that, Unity Bancorp is 1.75 times more volatile than US Bancorp. It trades about -0.08 of its total potential returns per unit of risk. US Bancorp is currently generating about -0.03 per unit of volatility. If you would invest  5,040  in US Bancorp on September 20, 2024 and sell it today you would lose (42.00) from holding US Bancorp or give up 0.83% of portfolio value over 90 days.

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

Unity Bancorp  vs.  US Bancorp

Unity Bancorp

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Unity Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

US Bancorp

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, US Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Unity Bancorp and US Bancorp

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

The idea behind Unity Bancorp and US 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.

Check out your portfolio center.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.