Correlation Between Meridian Bank and National Bankshares

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

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

Diversification Opportunities for Meridian Bank and National Bankshares

0.44

Correlation Coefficient

Meridian Bank  National Bankshares

Very weak diversification

The 3 months correlation between Meridian and National is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Bank and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares and Meridian Bank 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 Meridian Bank 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 Meridian Bank i.e., Meridian Bank and National Bankshares go up and down completely randomly.

Pair Corralation between Meridian Bank and National Bankshares

Given the investment horizon of 90 days Meridian Bank is expected to generate 0.9 times more return on investment than National Bankshares. However, Meridian Bank is 1.11 times less risky than National Bankshares. It trades about 0.08 of its potential returns per unit of risk. National Bankshares is currently generating about -0.04 per unit of risk. If you would invest  1,326  in Meridian Bank on December 30, 2024 and sell it today you would earn a total of  109.00  from holding Meridian Bank or generate 8.22% return on investment over 90 days.

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

Meridian Bank  vs.  National Bankshares

Meridian Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Meridian Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

National Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, National Bankshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Meridian Bank and National Bankshares

The main advantage of trading using opposite Meridian Bank and National Bankshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meridian Bank 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 Meridian Bank 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.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.