Correlation Between National Bankshares and Franklin Financial

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

By analyzing existing cross correlation between National Bankshares and Franklin Financial Services, you can compare the effects of market volatilities on National Bankshares and Franklin Financial 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 Franklin Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bankshares and Franklin Financial.

Diversification Opportunities for National Bankshares and Franklin Financial

-0.16

Correlation Coefficient

National Bankshares  Franklin Financial

Good diversification

The 3 months correlation between National and Franklin is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding National Bankshares and Franklin Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Financial 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 Franklin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Financial has no effect on the direction of National Bankshares i.e., National Bankshares and Franklin Financial go up and down completely randomly.

Pair Corralation between National Bankshares and Franklin Financial

Given the investment horizon of 90 days National Bankshares is expected to under-perform the Franklin Financial. In addition to that, National Bankshares is 1.14 times more volatile than Franklin Financial Services. It trades about -0.04 of its total potential returns per unit of risk. Franklin Financial Services is currently generating about 0.18 per unit of volatility. If you would invest  2,974  in Franklin Financial Services on December 29, 2024 and sell it today you would earn a total of  566.00  from holding Franklin Financial Services or generate 19.03% return on investment over 90 days.

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

National Bankshares  vs.  Franklin Financial Services

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.

Franklin Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bankshares and Franklin Financial

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

The idea behind National Bankshares and Franklin Financial Services 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.