Correlation Between Eagle Bancorp and Norwood Financial

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

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

Diversification Opportunities for Eagle Bancorp and Norwood Financial

0.81

Correlation Coefficient

Eagle Bancorp  Norwood Financial

Very poor diversification

The 3 months correlation between Eagle and Norwood is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana and Norwood Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwood Financial Corp and Eagle 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 Eagle Bancorp Montana are associated (or correlated) with Norwood Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwood Financial Corp has no effect on the direction of Eagle Bancorp i.e., Eagle Bancorp and Norwood Financial go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Norwood Financial

Given the investment horizon of 90 days Eagle Bancorp is expected to generate 1.32 times less return on investment than Norwood Financial. But when comparing it to its historical volatility, Eagle Bancorp Montana is 2.04 times less risky than Norwood Financial. It trades about 0.23 of its potential returns per unit of risk. Norwood Financial Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,538  in Norwood Financial Corp on September 2, 2024 and sell it today you would earn a total of  552.00  from holding Norwood Financial Corp or generate 21.75% return on investment over 90 days.

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

Eagle Bancorp Montana  vs.  Norwood Financial Corp

Eagle Bancorp Montana

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Norwood Financial Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Norwood Financial Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile technical and fundamental indicators, Norwood Financial disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Bancorp and Norwood Financial

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

The idea behind Eagle Bancorp Montana and Norwood Financial Corp 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.