Correlation Between Enterprise Bancorp and KB Financial

Can any of the company-specific risk be diversified away by investing in both Enterprise Bancorp and KB Financial 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 Enterprise Bancorp and KB Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Enterprise Bancorp and KB Financial Group, you can compare the effects of market volatilities on Enterprise Bancorp and KB Financial 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 Enterprise Bancorp with a short position of KB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enterprise Bancorp and KB Financial.

Diversification Opportunities for Enterprise Bancorp and KB Financial

-0.6

Correlation Coefficient

Enterprise Bancorp  KB Financial

Excellent diversification

The 3 months correlation between Enterprise and KB Financial is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and KB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Financial Group and Enterprise 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 Enterprise Bancorp are associated (or correlated) with KB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Financial Group has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and KB Financial go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and KB Financial

Given the investment horizon of 90 days Enterprise Bancorp is expected to under-perform the KB Financial. But the stock apears to be less risky and, when comparing its historical volatility, Enterprise Bancorp is 1.06 times less risky than KB Financial. The stock trades about -0.01 of its potential returns per unit of risk. The KB Financial Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,108  in KB Financial Group on January 20, 2024 and sell it today you would earn a total of  480.00  from holding KB Financial Group or generate 11.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Enterprise Bancorp  vs.  KB Financial Group

Enterprise Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enterprise Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

KB Financial Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KB Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, KB Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Bancorp and KB Financial

The main advantage of trading using opposite Enterprise Bancorp and KB Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Bancorp position performs unexpectedly, KB Financial 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 KB Financial will offset losses from the drop in KB Financial's long position.

The idea behind Enterprise Bancorp and KB Financial Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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.