Correlation Between Independent Bank and Eagle Bancorp

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

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

Diversification Opportunities for Independent Bank and Eagle Bancorp

0.57

Correlation Coefficient

Independent Bank  Eagle Bancorp

Very weak diversification

The 3 months correlation between Independent and Eagle is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank Group and Eagle Bancorp Montana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Bancorp Montana and Independent Bank 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 Independent Bank Group are associated (or correlated) with Eagle Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Bancorp Montana has no effect on the direction of Independent Bank i.e., Independent Bank and Eagle Bancorp go up and down completely randomly.

Pair Corralation between Independent Bank and Eagle Bancorp

Given the investment horizon of 90 days Independent Bank Group is expected to generate 3.53 times more return on investment than Eagle Bancorp. However, Independent Bank is 3.53 times more volatile than Eagle Bancorp Montana. It trades about 0.12 of its potential returns per unit of risk. Eagle Bancorp Montana is currently generating about 0.31 per unit of risk. If you would invest  4,034  in Independent Bank Group on February 11, 2024 and sell it today you would earn a total of  237.00  from holding Independent Bank Group or generate 5.88% return on investment over 90 days.

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

Independent Bank Group  vs.  Eagle Bancorp Montana

Independent Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eagle Bancorp Montana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Bancorp Montana has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Eagle Bancorp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Independent Bank and Eagle Bancorp

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

The idea behind Independent Bank Group and Eagle Bancorp Montana 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.