Correlation Between National Bank and Financial Institutions

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

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

Diversification Opportunities for National Bank and Financial Institutions

0.57

Correlation Coefficient

National Bank  Financial Institutions

Very weak diversification

The 3 months correlation between National and Financial is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions and National 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 National Bank Holdings are associated (or correlated) with Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of National Bank i.e., National Bank and Financial Institutions go up and down completely randomly.

Pair Corralation between National Bank and Financial Institutions

Given the investment horizon of 90 days National Bank Holdings is expected to under-perform the Financial Institutions. But the stock apears to be less risky and, when comparing its historical volatility, National Bank Holdings is 1.09 times less risky than Financial Institutions. The stock trades about -0.1 of its potential returns per unit of risk. The Financial Institutions is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,670  in Financial Institutions on December 30, 2024 and sell it today you would lose (170.00) from holding Financial Institutions or give up 6.37% of portfolio value over 90 days.

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

National Bank Holdings  vs.  Financial Institutions

National Bank Holdings

Risk-Adjusted Performance

Very Weak

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

Financial Institutions

Risk-Adjusted Performance

Very Weak

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

Pair Trading with National Bank and Financial Institutions

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

The idea behind National Bank Holdings and Financial Institutions 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.