Correlation Between National Bankshares and First Mid

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

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

Diversification Opportunities for National Bankshares and First Mid

0.82

Correlation Coefficient

National Bankshares  First Mid

Very poor diversification

The 3 months correlation between National and First is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding National Bankshares and First Mid Illinois in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Mid Illinois and National Bankshares 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 Bankshares are associated (or correlated) with First Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Mid Illinois has no effect on the direction of National Bankshares i.e., National Bankshares and First Mid go up and down completely randomly.

Pair Corralation between National Bankshares and First Mid

Given the investment horizon of 90 days National Bankshares is expected to generate 4.57 times less return on investment than First Mid. In addition to that, National Bankshares is 1.4 times more volatile than First Mid Illinois. It trades about 0.02 of its total potential returns per unit of risk. First Mid Illinois is currently generating about 0.11 per unit of volatility. If you would invest  3,574  in First Mid Illinois on December 2, 2024 and sell it today you would earn a total of  236.00  from holding First Mid Illinois or generate 6.6% return on investment over 90 days.

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

National Bankshares  vs.  First Mid Illinois

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 latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

First Mid Illinois

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Mid Illinois has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with National Bankshares and First Mid

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

The idea behind National Bankshares and First Mid Illinois 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.