Correlation Between Main Street and LCNB

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

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

Diversification Opportunities for Main Street and LCNB

-0.26

Correlation Coefficient

Main Street  LCNB

Very good diversification

The 3 months correlation between Main and LCNB is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Financial and LCNB Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LCNB and Main Street 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 Main Street Financial are associated (or correlated) with LCNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LCNB has no effect on the direction of Main Street i.e., Main Street and LCNB go up and down completely randomly.

Pair Corralation between Main Street and LCNB

Given the investment horizon of 90 days Main Street Financial is expected to under-perform the LCNB. But the otc stock apears to be less risky and, when comparing its historical volatility, Main Street Financial is 1.79 times less risky than LCNB. The otc stock trades about -0.06 of its potential returns per unit of risk. The LCNB Corporation is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,473  in LCNB Corporation on December 27, 2024 and sell it today you would earn a total of  9.00  from holding LCNB Corporation or generate 0.61% return on investment over 90 days.

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

Main Street Financial  vs.  LCNB Corp.

Main Street Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Street Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Main Street is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

LCNB

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LCNB Corporation are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, LCNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Main Street and LCNB

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

The idea behind Main Street Financial and LCNB Corporation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..