Correlation Between Southern California and IF Bancorp

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

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

Diversification Opportunities for Southern California and IF Bancorp

0.48

Correlation Coefficient

Southern California  IF Bancorp

Very weak diversification

The 3 months correlation between Southern and IROQ is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Southern California Bancorp and IF Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IF Bancorp and Southern California 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 Southern California Bancorp are associated (or correlated) with IF Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IF Bancorp has no effect on the direction of Southern California i.e., Southern California and IF Bancorp go up and down completely randomly.

Pair Corralation between Southern California and IF Bancorp

Given the investment horizon of 90 days Southern California Bancorp is expected to generate 0.78 times more return on investment than IF Bancorp. However, Southern California Bancorp is 1.28 times less risky than IF Bancorp. It trades about 0.18 of its potential returns per unit of risk. IF Bancorp is currently generating about 0.14 per unit of risk. If you would invest  1,484  in Southern California Bancorp on September 1, 2024 and sell it today you would earn a total of  308.00  from holding Southern California Bancorp or generate 20.75% return on investment over 90 days.

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

Southern California Bancorp  vs.  IF Bancorp

Southern California

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southern California Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Southern California disclosed solid returns over the last few months and may actually be approaching a breakup point.

IF Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IF Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, IF Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern California and IF Bancorp

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

The idea behind Southern California Bancorp and IF 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.