Correlation Between Byline Bancorp and Provident Financial

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

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

Diversification Opportunities for Byline Bancorp and Provident Financial

0.97

Correlation Coefficient

Byline Bancorp  Provident Financial

Almost no diversification

The 3 months correlation between Byline and Provident is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Byline Bancorp and Provident Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial and Byline 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 Byline Bancorp are associated (or correlated) with Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of Byline Bancorp i.e., Byline Bancorp and Provident Financial go up and down completely randomly.

Pair Corralation between Byline Bancorp and Provident Financial

Allowing for the 90-day total investment horizon Byline Bancorp is expected to generate 1.04 times more return on investment than Provident Financial. However, Byline Bancorp is 1.04 times more volatile than Provident Financial Services. It trades about 0.13 of its potential returns per unit of risk. Provident Financial Services is currently generating about 0.11 per unit of risk. If you would invest  2,583  in Byline Bancorp on September 12, 2024 and sell it today you would earn a total of  540.00  from holding Byline Bancorp or generate 20.91% return on investment over 90 days.

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

Byline Bancorp  vs.  Provident Financial Services

Byline Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Byline Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Byline Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Provident Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Provident Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Byline Bancorp and Provident Financial

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

The idea behind Byline Bancorp and Provident Financial Services 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.