Correlation Between ESSA Bancorp and VersaBank
Can any of the company-specific risk be diversified away by investing in both ESSA Bancorp and VersaBank 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 VersaBank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Bancorp and VersaBank, you can compare the effects of market volatilities on ESSA Bancorp and VersaBank 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 VersaBank. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Bancorp and VersaBank.
Diversification Opportunities for ESSA Bancorp and VersaBank
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ESSA and VersaBank is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank 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 VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and VersaBank go up and down completely randomly.
Pair Corralation between ESSA Bancorp and VersaBank
Given the investment horizon of 90 days ESSA Bancorp is expected to generate 2.84 times less return on investment than VersaBank. In addition to that, ESSA Bancorp is 1.21 times more volatile than VersaBank. It trades about 0.12 of its total potential returns per unit of risk. VersaBank is currently generating about 0.43 per unit of volatility. If you would invest 1,482 in VersaBank on August 30, 2024 and sell it today you would earn a total of 312.00 from holding VersaBank or generate 21.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
ESSA Bancorp vs. VersaBank
Performance |
| Timeline |
| ESSA Bancorp |
| VersaBank |
ESSA Bancorp and VersaBank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ESSA Bancorp and VersaBank
The main advantage of trading using opposite ESSA Bancorp and VersaBank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Bancorp position performs unexpectedly, VersaBank 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 VersaBank will offset losses from the drop in VersaBank'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 |
| VersaBank vs. Mountain Commerce Bancorp | VersaBank vs. American Riviera Bank | VersaBank vs. Home Federal Bancorp | VersaBank vs. Prime Meridian Holding |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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