Correlation Between Washington Trust and Independent Bank
Can any of the company-specific risk be diversified away by investing in both Washington Trust and Independent Bank 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 Washington Trust and Independent Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Washington Trust Bancorp and Independent Bank, you can compare the effects of market volatilities on Washington Trust and Independent Bank 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 Washington Trust with a short position of Independent Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Washington Trust and Independent Bank.
Diversification Opportunities for Washington Trust and Independent Bank
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Washington and Independent is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Washington Trust Bancorp and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Washington Trust 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 Washington Trust Bancorp are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Washington Trust i.e., Washington Trust and Independent Bank go up and down completely randomly.
Pair Corralation between Washington Trust and Independent Bank
Given the investment horizon of 90 days Washington Trust Bancorp is expected to generate 1.09 times more return on investment than Independent Bank. However, Washington Trust is 1.09 times more volatile than Independent Bank. It trades about 0.06 of its potential returns per unit of risk. Independent Bank is currently generating about 0.06 per unit of risk. If you would invest 2,417 in Washington Trust Bancorp on December 5, 2024 and sell it today you would earn a total of 777.00 from holding Washington Trust Bancorp or generate 32.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Washington Trust Bancorp vs. Independent Bank
Performance |
| Timeline |
| Washington Trust Bancorp |
| Independent Bank |
Washington Trust and Independent Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Washington Trust and Independent Bank
The main advantage of trading using opposite Washington Trust and Independent Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Trust position performs unexpectedly, Independent Bank 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 Independent Bank will offset losses from the drop in Independent Bank's long position.| Washington Trust vs. Univest Pennsylvania | ||
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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