Correlation Between VersaBank and Eastern Bankshares

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

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

Diversification Opportunities for VersaBank and Eastern Bankshares

0.75

Correlation Coefficient

VersaBank  Eastern Bankshares

Poor diversification

The 3 months correlation between VersaBank and Eastern is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares and VersaBank 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 VersaBank are associated (or correlated) with Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of VersaBank i.e., VersaBank and Eastern Bankshares go up and down completely randomly.

Pair Corralation between VersaBank and Eastern Bankshares

Given the investment horizon of 90 days VersaBank is expected to under-perform the Eastern Bankshares. In addition to that, VersaBank is 1.41 times more volatile than Eastern Bankshares. It trades about -0.19 of its total potential returns per unit of risk. Eastern Bankshares is currently generating about -0.04 per unit of volatility. If you would invest  1,713  in Eastern Bankshares on December 29, 2024 and sell it today you would lose (81.00) from holding Eastern Bankshares or give up 4.73% of portfolio value over 90 days.

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

VersaBank  vs.  Eastern Bankshares

VersaBank

Risk-Adjusted Performance

Very Weak

Over the last 90 days VersaBank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Eastern Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VersaBank and Eastern Bankshares

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

The idea behind VersaBank and Eastern 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.