Correlation Between ESSA Bancorp and City Holding
Can any of the company-specific risk be diversified away by investing in both ESSA Bancorp and City Holding 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 ESSA Bancorp and City Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Bancorp and City Holding, you can compare the effects of market volatilities on ESSA Bancorp and City Holding 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 ESSA Bancorp with a short position of City Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Bancorp and City Holding.
Diversification Opportunities for ESSA Bancorp and City Holding
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ESSA and City is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and City Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Holding and ESSA 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 ESSA Bancorp are associated (or correlated) with City Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Holding has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and City Holding go up and down completely randomly.
Pair Corralation between ESSA Bancorp and City Holding
Given the investment horizon of 90 days ESSA Bancorp is expected to generate 1.12 times less return on investment than City Holding. In addition to that, ESSA Bancorp is 1.49 times more volatile than City Holding. It trades about 0.05 of its total potential returns per unit of risk. City Holding is currently generating about 0.08 per unit of volatility. If you would invest 10,264 in City Holding on September 1, 2024 and sell it today you would earn a total of 2,868 from holding City Holding or generate 27.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ESSA Bancorp vs. City Holding
Performance |
| Timeline |
| ESSA Bancorp |
| City Holding |
ESSA Bancorp and City Holding Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ESSA Bancorp and City Holding
The main advantage of trading using opposite ESSA Bancorp and City Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Bancorp position performs unexpectedly, City Holding 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 City Holding will offset losses from the drop in City Holding's long position.| ESSA Bancorp vs. Community West Bancshares | ESSA Bancorp vs. First Northwest Bancorp | ESSA Bancorp vs. First Community | ESSA Bancorp vs. Oak Valley Bancorp |
| City Holding vs. Community West Bancshares | City Holding vs. Oak Valley Bancorp | City Holding vs. Home Federal Bancorp | City Holding vs. Magyar Bancorp |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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