Correlation Between North American and VersaBank

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

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

Diversification Opportunities for North American and VersaBank

0.19

Correlation Coefficient

North American  VersaBank

Average diversification

The 3 months correlation between North and VersaBank is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank and North American 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 North American Financial are associated (or correlated) with VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of North American i.e., North American and VersaBank go up and down completely randomly.

Pair Corralation between North American and VersaBank

Assuming the 90 days trading horizon North American Financial is expected to generate 0.8 times more return on investment than VersaBank. However, North American Financial is 1.25 times less risky than VersaBank. It trades about 0.05 of its potential returns per unit of risk. VersaBank is currently generating about -0.12 per unit of risk. If you would invest  669.00  in North American Financial on December 2, 2024 and sell it today you would earn a total of  15.00  from holding North American Financial or generate 2.24% return on investment over 90 days.

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

North American Financial  vs.  VersaBank

North American Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days North American Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, North American is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

VersaBank

Risk-Adjusted Performance

Very Weak

Over the last 90 days VersaBank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with North American and VersaBank

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

The idea behind North American Financial and VersaBank 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.