Correlation Between Community Heritage and Washington Business
Can any of the company-specific risk be diversified away by investing in both Community Heritage and Washington Business 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 Community Heritage and Washington Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Community Heritage Financial and Washington Business Bank, you can compare the effects of market volatilities on Community Heritage and Washington Business 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 Community Heritage with a short position of Washington Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community Heritage and Washington Business.
Diversification Opportunities for Community Heritage and Washington Business
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Community and Washington is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Community Heritage Financial and Washington Business Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Business Bank and Community Heritage 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 Community Heritage Financial are associated (or correlated) with Washington Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Business Bank has no effect on the direction of Community Heritage i.e., Community Heritage and Washington Business go up and down completely randomly.
Pair Corralation between Community Heritage and Washington Business
Given the investment horizon of 90 days Community Heritage is expected to generate 1.92 times less return on investment than Washington Business. But when comparing it to its historical volatility, Community Heritage Financial is 1.23 times less risky than Washington Business. It trades about 0.14 of its potential returns per unit of risk. Washington Business Bank is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 3,275 in Washington Business Bank on August 28, 2024 and sell it today you would earn a total of 325.00 from holding Washington Business Bank or generate 9.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Community Heritage Financial vs. Washington Business Bank
Performance |
| Timeline |
| Community Heritage |
| Washington Business Bank |
Community Heritage and Washington Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Community Heritage and Washington Business
The main advantage of trading using opposite Community Heritage and Washington Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community Heritage position performs unexpectedly, Washington Business 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 Washington Business will offset losses from the drop in Washington Business' long position.The idea behind Community Heritage Financial and Washington Business Bank 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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