Correlation Between ESSA Bancorp and KeyCorp

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

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

Diversification Opportunities for ESSA Bancorp and KeyCorp

0.7

Correlation Coefficient

ESSA Bancorp  KeyCorp

Poor diversification

The 3 months correlation between ESSA and KeyCorp is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and KeyCorp go up and down completely randomly.

Pair Corralation between ESSA Bancorp and KeyCorp

Given the investment horizon of 90 days ESSA Bancorp is expected to under-perform the KeyCorp. In addition to that, ESSA Bancorp is 1.8 times more volatile than KeyCorp. It trades about -0.12 of its total potential returns per unit of risk. KeyCorp is currently generating about -0.1 per unit of volatility. If you would invest  2,216  in KeyCorp on January 27, 2025 and sell it today you would lose (119.00) from holding KeyCorp or give up 5.37% of portfolio value over 90 days.

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

ESSA Bancorp  vs.  KeyCorp

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 latest unsteady 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.

KeyCorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days KeyCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, KeyCorp is not utilizing all of its potentials. The new stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ESSA Bancorp and KeyCorp

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

The idea behind ESSA Bancorp and KeyCorp 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.