Correlation Between Washington Business and Bank of Idaho Holding

Can any of the company-specific risk be diversified away by investing in both Washington Business and Bank of Idaho Holding 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 Washington Business and Bank of Idaho Holding into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Washington Business and Bank of Idaho Holding

0.92

Correlation Coefficient

Washington Business  Bank of Idaho Holding

Almost no diversification

The 3 months correlation between Washington and Bank is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Washington Business Bank and Bank of Idaho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Idaho Holding and Washington Business 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 Washington Business Bank are associated (or correlated) with Bank of Idaho Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Idaho Holding has no effect on the direction of Washington Business i.e., Washington Business and Bank of Idaho Holding go up and down completely randomly.

Pair Corralation between Washington Business and Bank of Idaho Holding

Given the investment horizon of 90 days Washington Business is expected to generate 1.71 times less return on investment than Bank of Idaho Holding. In addition to that, Washington Business is 1.12 times more volatile than Bank of Idaho. It trades about 0.09 of its total potential returns per unit of risk. Bank of Idaho is currently generating about 0.16 per unit of volatility. If you would invest  2,825  in Bank of Idaho on June 22, 2024 and sell it today you would earn a total of  275.00  from holding Bank of Idaho or generate 9.73% return on investment over 90 days.

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

Washington Business Bank  vs.  Bank of Idaho

Washington Business Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Business Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Washington Business is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bank of Idaho Holding

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Idaho are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Bank of Idaho Holding may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Washington Business and Bank of Idaho Holding

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

The idea behind Washington Business Bank and Bank of Idaho 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.