Correlation Between Eastern Bankshares and Heritage Financial

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

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

Diversification Opportunities for Eastern Bankshares and Heritage Financial

0.47

Correlation Coefficient

Eastern Bankshares  Heritage Financial

Very weak diversification

The 3 months correlation between Eastern and Heritage is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Financial and Eastern Bankshares 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 Eastern Bankshares are associated (or correlated) with Heritage Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Financial has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and Heritage Financial go up and down completely randomly.

Pair Corralation between Eastern Bankshares and Heritage Financial

Considering the 90-day investment horizon Eastern Bankshares is expected to generate 1.54 times less return on investment than Heritage Financial. But when comparing it to its historical volatility, Eastern Bankshares is 1.0 times less risky than Heritage Financial. It trades about 0.07 of its potential returns per unit of risk. Heritage Financial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,822  in Heritage Financial on February 7, 2024 and sell it today you would earn a total of  81.00  from holding Heritage Financial or generate 4.45% return on investment over 90 days.

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

Eastern Bankshares  vs.  Heritage Financial

Eastern Bankshares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Bankshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Heritage Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heritage Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eastern Bankshares and Heritage Financial

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

The idea behind Eastern Bankshares and Heritage Financial 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.