Correlation Between Axos Financial and ESSA Bancorp

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Can any of the company-specific risk be diversified away by investing in both Axos Financial and ESSA 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 Axos Financial and ESSA Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Axos Financial and ESSA Bancorp, you can compare the effects of market volatilities on Axos Financial and ESSA 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 Axos Financial with a short position of ESSA Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Axos Financial and ESSA Bancorp.

Diversification Opportunities for Axos Financial and ESSA Bancorp

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Axos and ESSA is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Axos Financial and ESSA Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Bancorp and Axos Financial 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 Axos Financial are associated (or correlated) with ESSA Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Bancorp has no effect on the direction of Axos Financial i.e., Axos Financial and ESSA Bancorp go up and down completely randomly.

Pair Corralation between Axos Financial and ESSA Bancorp

Allowing for the 90-day total investment horizon Axos Financial is expected to generate 1.27 times more return on investment than ESSA Bancorp. However, Axos Financial is 1.27 times more volatile than ESSA Bancorp. It trades about 0.07 of its potential returns per unit of risk. ESSA Bancorp is currently generating about 0.06 per unit of risk. If you would invest  4,309  in Axos Financial on December 29, 2023 and sell it today you would earn a total of  1,095  from holding Axos Financial or generate 25.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Axos Financial  vs.  ESSA Bancorp

 Performance 
       Timeline  
Axos Financial 

Risk-Adjusted Performance

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High
Very Weak
Over the last 90 days Axos Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Axos Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
ESSA Bancorp 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days ESSA Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Axos Financial and ESSA Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Axos Financial and ESSA Bancorp

The main advantage of trading using opposite Axos Financial and ESSA Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axos Financial position performs unexpectedly, ESSA 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 ESSA Bancorp will offset losses from the drop in ESSA Bancorp's long position.
The idea behind Axos Financial and ESSA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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