Correlation Between ECB Bancorp and Macatawa Bank

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

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

Diversification Opportunities for ECB Bancorp and Macatawa Bank

-0.78

Correlation Coefficient

ECB Bancorp  Macatawa Bank

Pay attention - limited upside

The 3 months correlation between ECB and Macatawa is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding ECB Bancorp and Macatawa Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macatawa Bank and ECB 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 ECB Bancorp are associated (or correlated) with Macatawa Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macatawa Bank has no effect on the direction of ECB Bancorp i.e., ECB Bancorp and Macatawa Bank go up and down completely randomly.

Pair Corralation between ECB Bancorp and Macatawa Bank

Given the investment horizon of 90 days ECB Bancorp is expected to under-perform the Macatawa Bank. But the stock apears to be less risky and, when comparing its historical volatility, ECB Bancorp is 3.32 times less risky than Macatawa Bank. The stock trades about -0.03 of its potential returns per unit of risk. The Macatawa Bank is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  987.00  in Macatawa Bank on March 7, 2024 and sell it today you would earn a total of  397.00  from holding Macatawa Bank or generate 40.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

ECB Bancorp  vs.  Macatawa Bank

ECB Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, ECB Bancorp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Macatawa Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Macatawa Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Macatawa Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ECB Bancorp and Macatawa Bank

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

The idea behind ECB Bancorp and Macatawa Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.