Correlation Between Potomac Bancshares and Apollo Bancorp

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

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

Diversification Opportunities for Potomac Bancshares and Apollo Bancorp

-0.42

Correlation Coefficient

Potomac Bancshares  Apollo Bancorp

Very good diversification

The 3 months correlation between Potomac and Apollo is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares and Apollo Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apollo Bancorp and Potomac Bancshares 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 Potomac Bancshares are associated (or correlated) with Apollo Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apollo Bancorp has no effect on the direction of Potomac Bancshares i.e., Potomac Bancshares and Apollo Bancorp go up and down completely randomly.

Pair Corralation between Potomac Bancshares and Apollo Bancorp

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 1.15 times more return on investment than Apollo Bancorp. However, Potomac Bancshares is 1.15 times more volatile than Apollo Bancorp. It trades about 0.04 of its potential returns per unit of risk. Apollo Bancorp is currently generating about 0.03 per unit of risk. If you would invest  1,439  in Potomac Bancshares on September 2, 2024 and sell it today you would earn a total of  211.00  from holding Potomac Bancshares or generate 14.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	70.59%
Values	Daily Returns

Potomac Bancshares  vs.  Apollo Bancorp

Potomac Bancshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Potomac Bancshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental drivers, Potomac Bancshares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Apollo Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apollo Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Apollo Bancorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Potomac Bancshares and Apollo Bancorp

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

The idea behind Potomac Bancshares and Apollo 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.