Correlation Between US Bancorp and South Atlantic

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

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

Diversification Opportunities for US Bancorp and South Atlantic

-0.34

Correlation Coefficient

US Bancorp  South Atlantic

Very good diversification

The 3 months correlation between USB-PH and South is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and South Atlantic Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Atlantic Bancshares 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 South Atlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Atlantic Bancshares has no effect on the direction of US Bancorp i.e., US Bancorp and South Atlantic go up and down completely randomly.

Pair Corralation between US Bancorp and South Atlantic

Assuming the 90 days trading horizon US Bancorp is expected to generate 0.53 times more return on investment than South Atlantic. However, US Bancorp is 1.9 times less risky than South Atlantic. It trades about 0.05 of its potential returns per unit of risk. South Atlantic Bancshares is currently generating about -0.01 per unit of risk. If you would invest  2,190  in US Bancorp on December 28, 2024 and sell it today you would earn a total of  41.00  from holding US Bancorp or generate 1.87% return on investment over 90 days.

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

US Bancorp  vs.  South Atlantic Bancshares

US Bancorp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 4 (%) 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.

South Atlantic Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Atlantic Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, South Atlantic is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with US Bancorp and South Atlantic

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

The idea behind US Bancorp and South Atlantic Bancshares 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.