Correlation Between Finward Bancorp and National Bankshares

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

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

Diversification Opportunities for Finward Bancorp and National Bankshares

0.29

Correlation Coefficient

Finward Bancorp  National Bankshares

Modest diversification

The 3 months correlation between Finward and National is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Finward Bancorp and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares and Finward 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 Finward Bancorp are associated (or correlated) with National Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of Finward Bancorp i.e., Finward Bancorp and National Bankshares go up and down completely randomly.

Pair Corralation between Finward Bancorp and National Bankshares

Given the investment horizon of 90 days Finward Bancorp is expected to generate 1.11 times less return on investment than National Bankshares. But when comparing it to its historical volatility, Finward Bancorp is 1.26 times less risky than National Bankshares. It trades about 0.13 of its potential returns per unit of risk. National Bankshares is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,766  in National Bankshares on September 3, 2024 and sell it today you would earn a total of  444.00  from holding National Bankshares or generate 16.05% return on investment over 90 days.

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

Finward Bancorp  vs.  National Bankshares

Finward Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Finward Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Finward Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

National Bankshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bankshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, National Bankshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Finward Bancorp and National Bankshares

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

The idea behind Finward Bancorp and National Bankshares 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.