Correlation Between DBS Group and Embassy Bancorp

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

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

Diversification Opportunities for DBS Group and Embassy Bancorp

0.9

Correlation Coefficient

DBS Group  Embassy Bancorp

Almost no diversification

The 3 months correlation between DBS and Embassy is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding DBS Group Holdings and Embassy Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embassy Bancorp and DBS Group 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 DBS Group Holdings are associated (or correlated) with Embassy Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embassy Bancorp has no effect on the direction of DBS Group i.e., DBS Group and Embassy Bancorp go up and down completely randomly.

Pair Corralation between DBS Group and Embassy Bancorp

Assuming the 90 days horizon DBS Group Holdings is expected to generate 2.72 times more return on investment than Embassy Bancorp. However, DBS Group is 2.72 times more volatile than Embassy Bancorp. It trades about 0.18 of its potential returns per unit of risk. Embassy Bancorp is currently generating about 0.2 per unit of risk. If you would invest  11,085  in DBS Group Holdings on September 5, 2024 and sell it today you would earn a total of  1,887  from holding DBS Group Holdings or generate 17.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

DBS Group Holdings  vs.  Embassy Bancorp

DBS Group Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DBS Group Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, DBS Group showed solid returns over the last few months and may actually be approaching a breakup point.

Embassy Bancorp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embassy Bancorp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Embassy Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with DBS Group and Embassy Bancorp

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

The idea behind DBS Group Holdings and Embassy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.