Correlation Between National Bankshares and Great Southern

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

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

Diversification Opportunities for National Bankshares and Great Southern

0.41

Correlation Coefficient

National Bankshares  Great Southern

Very weak diversification

The 3 months correlation between National and Great is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding National Bankshares and Great Southern Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Southern Bancorp 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 Great Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Southern Bancorp has no effect on the direction of National Bankshares i.e., National Bankshares and Great Southern go up and down completely randomly.

Pair Corralation between National Bankshares and Great Southern

Given the investment horizon of 90 days National Bankshares is expected to generate 1.23 times more return on investment than Great Southern. However, National Bankshares is 1.23 times more volatile than Great Southern Bancorp. It trades about -0.04 of its potential returns per unit of risk. Great Southern Bancorp is currently generating about -0.05 per unit of risk. If you would invest  2,873  in National Bankshares on December 28, 2024 and sell it today you would lose (165.00) from holding National Bankshares or give up 5.74% of portfolio value over 90 days.

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

National Bankshares  vs.  Great Southern Bancorp

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.

Great Southern Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Great Southern Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Great Southern is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with National Bankshares and Great Southern

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

The idea behind National Bankshares and Great Southern 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.