Correlation Between ESSA Bancorp and PNC Financial

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

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

Diversification Opportunities for ESSA Bancorp and PNC Financial

-0.01

Correlation Coefficient

ESSA Bancorp  PNC Financial

Good diversification

The 3 months correlation between ESSA and PNC is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Bancorp and PNC Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC Financial Services and ESSA 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 ESSA Bancorp are associated (or correlated) with PNC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC Financial Services has no effect on the direction of ESSA Bancorp i.e., ESSA Bancorp and PNC Financial go up and down completely randomly.

Pair Corralation between ESSA Bancorp and PNC Financial

Given the investment horizon of 90 days ESSA Bancorp is expected to generate 4.06 times less return on investment than PNC Financial. In addition to that, ESSA Bancorp is 1.8 times more volatile than PNC Financial Services. It trades about 0.01 of its total potential returns per unit of risk. PNC Financial Services is currently generating about 0.09 per unit of volatility. If you would invest  14,465  in PNC Financial Services on February 23, 2024 and sell it today you would earn a total of  1,185  from holding PNC Financial Services or generate 8.19% return on investment over 90 days.

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

ESSA Bancorp  vs.  PNC Financial Services

ESSA Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESSA Bancorp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PNC Financial Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PNC Financial Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, PNC Financial may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with ESSA Bancorp and PNC Financial

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

The idea behind ESSA Bancorp and PNC 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.