Correlation Between ECB Bancorp and First Western
Can any of the company-specific risk be diversified away by investing in both ECB Bancorp and First Western 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 ECB Bancorp and First Western into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ECB Bancorp and First Western Financial, you can compare the effects of market volatilities on ECB Bancorp and First Western 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 ECB Bancorp with a short position of First Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECB Bancorp and First Western.
Diversification Opportunities for ECB Bancorp and First Western
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between ECB and First is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding ECB Bancorp and First Western Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Western Financial and ECB 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 ECB Bancorp are associated (or correlated) with First Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Western Financial has no effect on the direction of ECB Bancorp i.e., ECB Bancorp and First Western go up and down completely randomly.
Pair Corralation between ECB Bancorp and First Western
Given the investment horizon of 90 days ECB Bancorp is expected to generate 0.55 times more return on investment than First Western. However, ECB Bancorp is 1.81 times less risky than First Western. It trades about -0.01 of its potential returns per unit of risk. First Western Financial is currently generating about -0.01 per unit of risk. If you would invest 1,658 in ECB Bancorp on August 27, 2024 and sell it today you would lose (169.00) from holding ECB Bancorp or give up 10.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ECB Bancorp vs. First Western Financial
Performance |
| Timeline |
| ECB Bancorp |
| First Western Financial |
ECB Bancorp and First Western Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ECB Bancorp and First Western
The main advantage of trading using opposite ECB Bancorp and First Western positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ECB Bancorp position performs unexpectedly, First Western 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 First Western will offset losses from the drop in First Western's long position.| ECB Bancorp vs. Fifth Third Bancorp | ECB Bancorp vs. Zions Bancorporation | ECB Bancorp vs. Huntington Bancshares Incorporated | ECB Bancorp vs. PNC Financial Services |
| First Western vs. Home Federal Bancorp | First Western vs. First Financial Northwest | First Western vs. First Northwest Bancorp | First Western vs. First Capital |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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