Correlation Between Potomac Bancshares and Somerset Trust
Can any of the company-specific risk be diversified away by investing in both Potomac Bancshares and Somerset Trust 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 Potomac Bancshares and Somerset Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Potomac Bancshares and Somerset Trust Holding, you can compare the effects of market volatilities on Potomac Bancshares and Somerset Trust 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 Potomac Bancshares with a short position of Somerset Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potomac Bancshares and Somerset Trust.
Diversification Opportunities for Potomac Bancshares and Somerset Trust
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Potomac and Somerset is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and Somerset Trust Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Somerset Trust Holding and Potomac Bancshares 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 Potomac Bancshares are associated (or correlated) with Somerset Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Somerset Trust Holding has no effect on the direction of Potomac Bancshares i.e., Potomac Bancshares and Somerset Trust go up and down completely randomly.
Pair Corralation between Potomac Bancshares and Somerset Trust
Given the investment horizon of 90 days Potomac Bancshares is expected to generate 1.41 times more return on investment than Somerset Trust. However, Potomac Bancshares is 1.41 times more volatile than Somerset Trust Holding. It trades about 0.06 of its potential returns per unit of risk. Somerset Trust Holding is currently generating about 0.04 per unit of risk. If you would invest 1,426 in Potomac Bancshares on September 1, 2024 and sell it today you would earn a total of 224.00 from holding Potomac Bancshares or generate 15.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Potomac Bancshares vs. Somerset Trust Holding
Performance |
| Timeline |
| Potomac Bancshares |
| Somerset Trust Holding |
Potomac Bancshares and Somerset Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Potomac Bancshares and Somerset Trust
The main advantage of trading using opposite Potomac Bancshares and Somerset Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Potomac Bancshares position performs unexpectedly, Somerset Trust 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 Somerset Trust will offset losses from the drop in Somerset Trust's long position.| Potomac Bancshares vs. Apollo Bancorp | Potomac Bancshares vs. The Farmers Bank | Potomac Bancshares vs. Community Bankers | Potomac Bancshares vs. CCSB Financial Corp |
| Somerset Trust vs. HUMANA INC | Somerset Trust vs. SCOR PK | Somerset Trust vs. Aquagold International | Somerset Trust vs. Thrivent High Yield |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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