Correlation Between Old Second and Potomac Bancshares
Can any of the company-specific risk be diversified away by investing in both Old Second 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 Old Second and Potomac Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Old Second Bancorp and Potomac Bancshares, you can compare the effects of market volatilities on Old Second 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 Old Second with a short position of Potomac Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Second and Potomac Bancshares.
Diversification Opportunities for Old Second and Potomac Bancshares
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Old and Potomac is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Old Second Bancorp and Potomac Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potomac Bancshares and Old Second 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 Old Second Bancorp 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 Old Second i.e., Old Second and Potomac Bancshares go up and down completely randomly.
Pair Corralation between Old Second and Potomac Bancshares
Given the investment horizon of 90 days Old Second Bancorp is expected to generate 0.85 times more return on investment than Potomac Bancshares. However, Old Second Bancorp is 1.17 times less risky than Potomac Bancshares. It trades about 0.06 of its potential returns per unit of risk. Potomac Bancshares is currently generating about 0.03 per unit of risk. If you would invest 1,321 in Old Second Bancorp on September 2, 2024 and sell it today you would earn a total of 539.00 from holding Old Second Bancorp or generate 40.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 84.41% |
| Values | Daily Returns |
Old Second Bancorp vs. Potomac Bancshares
Performance |
| Timeline |
| Old Second Bancorp |
| Potomac Bancshares |
Old Second and Potomac Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Old Second and Potomac Bancshares
The main advantage of trading using opposite Old Second and Potomac Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Old Second 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.| Old Second vs. Ohio Valley Banc | Old Second vs. Peoples Bancorp | Old Second vs. OceanFirst Financial Corp | Old Second vs. QCR Holdings |
| 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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