Correlation Between Esquire Financial and Five Star
Can any of the company-specific risk be diversified away by investing in both Esquire Financial and Five Star 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 Esquire Financial and Five Star into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Esquire Financial Holdings and Five Star Bancorp, you can compare the effects of market volatilities on Esquire Financial and Five Star 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 Esquire Financial with a short position of Five Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Esquire Financial and Five Star.
Diversification Opportunities for Esquire Financial and Five Star
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Esquire and Five is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Esquire Financial Holdings and Five Star Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Star Bancorp and Esquire 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 Esquire Financial Holdings are associated (or correlated) with Five Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Star Bancorp has no effect on the direction of Esquire Financial i.e., Esquire Financial and Five Star go up and down completely randomly.
Pair Corralation between Esquire Financial and Five Star
Considering the 90-day investment horizon Esquire Financial Holdings is expected to generate 1.02 times more return on investment than Five Star. However, Esquire Financial is 1.02 times more volatile than Five Star Bancorp. It trades about -0.08 of its potential returns per unit of risk. Five Star Bancorp is currently generating about -0.16 per unit of risk. If you would invest 4,844 in Esquire Financial Holdings on January 21, 2024 and sell it today you would lose (184.00) from holding Esquire Financial Holdings or give up 3.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Esquire Financial Holdings vs. Five Star Bancorp
Performance |
| Timeline |
| Esquire Financial |
| Five Star Bancorp |
Esquire Financial and Five Star Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Esquire Financial and Five Star
The main advantage of trading using opposite Esquire Financial and Five Star positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Esquire Financial position performs unexpectedly, Five Star 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 Five Star will offset losses from the drop in Five Star's long position.The idea behind Esquire Financial Holdings and Five Star 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.Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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