Correlation Between US Bancorp and Exchange Bankshares

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

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

Diversification Opportunities for US Bancorp and Exchange Bankshares

0.65

Correlation Coefficient

US Bancorp  Exchange Bankshares

Poor diversification

The 3 months correlation between USB-PH and Exchange is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and Exchange Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bankshares and US 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 US Bancorp are associated (or correlated) with Exchange Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bankshares has no effect on the direction of US Bancorp i.e., US Bancorp and Exchange Bankshares go up and down completely randomly.

Pair Corralation between US Bancorp and Exchange Bankshares

Assuming the 90 days trading horizon US Bancorp is expected to generate 4.76 times less return on investment than Exchange Bankshares. But when comparing it to its historical volatility, US Bancorp is 2.54 times less risky than Exchange Bankshares. It trades about 0.1 of its potential returns per unit of risk. Exchange Bankshares is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,964  in Exchange Bankshares on October 22, 2024 and sell it today you would earn a total of  826.00  from holding Exchange Bankshares or generate 20.84% return on investment over 90 days.

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

US Bancorp  vs.  Exchange Bankshares

US Bancorp

Risk-Adjusted Performance

7 of 100

OK

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 fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Exchange Bankshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bankshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Exchange Bankshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with US Bancorp and Exchange Bankshares

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

The idea behind US Bancorp and Exchange 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.