Correlation Between Bank of Botetourt and Southern Michigan

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

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

Diversification Opportunities for Bank of Botetourt and Southern Michigan

0.84

Correlation Coefficient

Bank of Botetourt  Southern Michigan

Very poor diversification

The 3 months correlation between Bank and Southern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Botetourt and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp and Bank of Botetourt 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 Bank of Botetourt are associated (or correlated) with Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Bank of Botetourt i.e., Bank of Botetourt and Southern Michigan go up and down completely randomly.

Pair Corralation between Bank of Botetourt and Southern Michigan

Given the investment horizon of 90 days Bank of Botetourt is expected to generate 1.63 times less return on investment than Southern Michigan. But when comparing it to its historical volatility, Bank of Botetourt is 1.74 times less risky than Southern Michigan. It trades about 0.09 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,461  in Southern Michigan Bancorp on September 14, 2024 and sell it today you would earn a total of  464.00  from holding Southern Michigan Bancorp or generate 31.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.54%
Values	Daily Returns

Bank of Botetourt  vs.  Southern Michigan Bancorp

Bank of Botetourt

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Botetourt are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Bank of Botetourt is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Southern Michigan Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Southern Michigan exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Botetourt and Southern Michigan

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

The idea behind Bank of Botetourt and Southern Michigan 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.