Correlation Between ESSA Bancorp and Byline Bancorp

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

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

Diversification Opportunities for ESSA Bancorp and Byline Bancorp

0.8

Correlation Coefficient

ESSA Bancorp  Byline Bancorp

Very poor diversification

The 3 months correlation between ESSA and Byline is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and Byline Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Byline Bancorp and ESSA 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 ESSA Bancorp are associated (or correlated) with Byline Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Byline Bancorp has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and Byline Bancorp go up and down completely randomly.

Pair Corralation between ESSA Bancorp and Byline Bancorp

Given the investment horizon of 90 days ESSA Bancorp is expected to generate 0.86 times more return on investment than Byline Bancorp. However, ESSA Bancorp is 1.16 times less risky than Byline Bancorp. It trades about 0.01 of its potential returns per unit of risk. Byline Bancorp is currently generating about -0.1 per unit of risk. If you would invest  1,897  in ESSA Bancorp on January 4, 2025 and sell it today you would earn a total of  1.00  from holding ESSA Bancorp or generate 0.05% return on investment over 90 days.

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

ESSA Bancorp  vs.  Byline Bancorp

ESSA Bancorp

Risk-Adjusted Performance

Very Weak

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

Byline Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Byline Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent 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.

Pair Trading with ESSA Bancorp and Byline Bancorp

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

The idea behind ESSA Bancorp and Byline 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.