Correlation Between Logan Ridge and Potomac Bancshares

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

By analyzing existing cross correlation between Logan Ridge Finance and Potomac Bancshares, you can compare the effects of market volatilities on Logan Ridge and Potomac Bancshares 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 Logan Ridge with a short position of Potomac Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Logan Ridge and Potomac Bancshares.

Diversification Opportunities for Logan Ridge and Potomac Bancshares

0.24

Correlation Coefficient

Logan Ridge  Potomac Bancshares

Modest diversification

The 3 months correlation between Logan and Potomac is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Logan Ridge Finance and Potomac Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potomac Bancshares and Logan Ridge 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 Logan Ridge Finance are associated (or correlated) with Potomac Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potomac Bancshares has no effect on the direction of Logan Ridge i.e., Logan Ridge and Potomac Bancshares go up and down completely randomly.

Pair Corralation between Logan Ridge and Potomac Bancshares

Given the investment horizon of 90 days Logan Ridge Finance is expected to under-perform the Potomac Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, Logan Ridge Finance is 1.66 times less risky than Potomac Bancshares. The stock trades about -0.09 of its potential returns per unit of risk. The Potomac Bancshares is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,638  in Potomac Bancshares on December 26, 2024 and sell it today you would lose (83.00) from holding Potomac Bancshares or give up 5.07% of portfolio value over 90 days.

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

Logan Ridge Finance  vs.  Potomac Bancshares

Logan Ridge Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Logan Ridge Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Potomac Bancshares

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Logan Ridge and Potomac Bancshares

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

The idea behind Logan Ridge Finance and Potomac Bancshares 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.