Correlation Between Postal Savings and US Bancorp

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

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

Diversification Opportunities for Postal Savings and US Bancorp

0.27

Correlation Coefficient

Postal Savings  US Bancorp

Modest diversification

The 3 months correlation between Postal and USB is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Postal Savings Bank and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and Postal Savings 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 Postal Savings Bank are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Postal Savings i.e., Postal Savings and US Bancorp go up and down completely randomly.

Pair Corralation between Postal Savings and US Bancorp

Assuming the 90 days horizon Postal Savings Bank is expected to under-perform the US Bancorp. In addition to that, Postal Savings is 1.15 times more volatile than US Bancorp. It trades about -0.08 of its total potential returns per unit of risk. US Bancorp is currently generating about -0.08 per unit of volatility. If you would invest  4,304  in US Bancorp on January 26, 2024 and sell it today you would lose (143.00) from holding US Bancorp or give up 3.32% of portfolio value over 90 days.

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

Postal Savings Bank  vs.  US Bancorp

Postal Savings Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Postal Savings Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Postal Savings may actually be approaching a critical reversion point that can send shares even higher in May 2024.

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Postal Savings and US Bancorp

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

The idea behind Postal Savings Bank and US Bancorp 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 Stocks Directory module to find actively traded stocks across global markets.