Correlation Between NBT Bancorp and Southern Missouri

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

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

Diversification Opportunities for NBT Bancorp and Southern Missouri

0.84

Correlation Coefficient

NBT Bancorp  Southern Missouri

Very poor diversification

The 3 months correlation between NBT and Southern is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NBT Bancorp and Southern Missouri Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Missouri Bancorp and NBT 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 NBT Bancorp are associated (or correlated) with Southern Missouri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Missouri Bancorp has no effect on the direction of NBT Bancorp i.e., NBT Bancorp and Southern Missouri go up and down completely randomly.

Pair Corralation between NBT Bancorp and Southern Missouri

Given the investment horizon of 90 days NBT Bancorp is expected to under-perform the Southern Missouri. But the stock apears to be less risky and, when comparing its historical volatility, NBT Bancorp is 1.08 times less risky than Southern Missouri. The stock trades about -0.09 of its potential returns per unit of risk. The Southern Missouri Bancorp is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,788  in Southern Missouri Bancorp on December 28, 2024 and sell it today you would lose (413.00) from holding Southern Missouri Bancorp or give up 7.14% of portfolio value over 90 days.

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

NBT Bancorp  vs.  Southern Missouri Bancorp

NBT Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days NBT Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Southern Missouri Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with NBT Bancorp and Southern Missouri

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

The idea behind NBT Bancorp and Southern Missouri Bancorp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.