Correlation Between Fentura Financial and Southern Michigan

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

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

Diversification Opportunities for Fentura Financial and Southern Michigan

0.87

Correlation Coefficient

Fentura Financial  Southern Michigan

Very poor diversification

The 3 months correlation between Fentura and Southern is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Fentura Financial 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 Fentura Financial 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 Fentura Financial 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 Fentura Financial i.e., Fentura Financial and Southern Michigan go up and down completely randomly.

Pair Corralation between Fentura Financial and Southern Michigan

Given the investment horizon of 90 days Fentura Financial is expected to generate 1.26 times more return on investment than Southern Michigan. However, Fentura Financial is 1.26 times more volatile than Southern Michigan Bancorp. It trades about 0.16 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.07 per unit of risk. If you would invest  2,314  in Fentura Financial on October 5, 2024 and sell it today you would earn a total of  2,102  from holding Fentura Financial or generate 90.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.62%
Values	Daily Returns

Fentura Financial  vs.  Southern Michigan Bancorp

Fentura Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fentura Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Fentura Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

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 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fentura Financial and Southern Michigan

The main advantage of trading using opposite Fentura Financial and Southern Michigan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fentura Financial 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 Fentura Financial 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.