Correlation Between Enterprise Bancorp and Orange County

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

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

Diversification Opportunities for Enterprise Bancorp and Orange County

0.64

Correlation Coefficient

Enterprise Bancorp  Orange County

Poor diversification

The 3 months correlation between Enterprise and Orange is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Bancorp and Orange County Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange County Bancorp and Enterprise 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 Enterprise Bancorp are associated (or correlated) with Orange County. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange County Bancorp has no effect on the direction of Enterprise Bancorp i.e., Enterprise Bancorp and Orange County go up and down completely randomly.

Pair Corralation between Enterprise Bancorp and Orange County

Given the investment horizon of 90 days Enterprise Bancorp is expected to generate 2.25 times less return on investment than Orange County. But when comparing it to its historical volatility, Enterprise Bancorp is 1.47 times less risky than Orange County. It trades about 0.05 of its potential returns per unit of risk. Orange County Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,092  in Orange County Bancorp on August 15, 2024 and sell it today you would earn a total of  3,163  from holding Orange County Bancorp or generate 102.3% return on investment over 90 days.

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

Enterprise Bancorp  vs.  Orange County Bancorp

Enterprise Bancorp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Bancorp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Enterprise Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Orange County Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Orange County Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental drivers, Orange County unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Bancorp and Orange County

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

The idea behind Enterprise Bancorp and Orange County 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.