Correlation Between Bayfirst Financial and Potomac Bancshares
Can any of the company-specific risk be diversified away by investing in both Bayfirst Financial and Potomac Bancshares 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 Bayfirst Financial and Potomac Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bayfirst Financial Corp and Potomac Bancshares, you can compare the effects of market volatilities on Bayfirst Financial and Potomac Bancshares 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 Bayfirst Financial with a short position of Potomac Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayfirst Financial and Potomac Bancshares.
Diversification Opportunities for Bayfirst Financial and Potomac Bancshares
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Bayfirst and Potomac is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Bayfirst Financial Corp and Potomac Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potomac Bancshares and Bayfirst Financial 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 Bayfirst Financial Corp are associated (or correlated) with Potomac Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potomac Bancshares has no effect on the direction of Bayfirst Financial i.e., Bayfirst Financial and Potomac Bancshares go up and down completely randomly.
Pair Corralation between Bayfirst Financial and Potomac Bancshares
Given the investment horizon of 90 days Bayfirst Financial Corp is expected to under-perform the Potomac Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, Bayfirst Financial Corp is 1.58 times less risky than Potomac Bancshares. The stock trades about -0.03 of its potential returns per unit of risk. The Potomac Bancshares is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 1,413 in Potomac Bancshares on September 1, 2024 and sell it today you would earn a total of 237.00 from holding Potomac Bancshares or generate 16.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bayfirst Financial Corp vs. Potomac Bancshares
Performance |
| Timeline |
| Bayfirst Financial Corp |
| Potomac Bancshares |
Bayfirst Financial and Potomac Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bayfirst Financial and Potomac Bancshares
The main advantage of trading using opposite Bayfirst Financial and Potomac Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayfirst Financial position performs unexpectedly, Potomac Bancshares 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 Potomac Bancshares will offset losses from the drop in Potomac Bancshares' long position.| Bayfirst Financial vs. Home Federal Bancorp | Bayfirst Financial vs. LINKBANCORP | Bayfirst Financial vs. Affinity Bancshares | Bayfirst Financial vs. BayCom Corp |
| Potomac Bancshares vs. Apollo Bancorp | Potomac Bancshares vs. The Farmers Bank | Potomac Bancshares vs. Community Bankers | Potomac Bancshares vs. CCSB Financial Corp |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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