Correlation Between US Bancorp and InBankshares Corp

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

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

Diversification Opportunities for US Bancorp and InBankshares Corp

0.39

Correlation Coefficient

US Bancorp  InBankshares Corp

Weak diversification

The 3 months correlation between USB and InBankshares is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and InBankshares Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on InBankshares Corp and US 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 US Bancorp are associated (or correlated) with InBankshares Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of InBankshares Corp has no effect on the direction of US Bancorp i.e., US Bancorp and InBankshares Corp go up and down completely randomly.

Pair Corralation between US Bancorp and InBankshares Corp

Considering the 90-day investment horizon US Bancorp is expected to generate 2.88 times more return on investment than InBankshares Corp. However, US Bancorp is 2.88 times more volatile than InBankshares Corp. It trades about -0.08 of its potential returns per unit of risk. InBankshares Corp is currently generating about -0.44 per unit of risk. 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

US Bancorp  vs.  InBankshares Corp

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.

InBankshares Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InBankshares Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, InBankshares Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with US Bancorp and InBankshares Corp

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

The idea behind US Bancorp and InBankshares Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.