Correlation Between National Bankshares and Old Point

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

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

Diversification Opportunities for National Bankshares and Old Point

-0.73

Correlation Coefficient

National Bankshares  Old Point

Pay attention - limited upside

The 3 months correlation between National and Old is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding National Bankshares and Old Point Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Point 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 Old Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Point Financial has no effect on the direction of National Bankshares i.e., National Bankshares and Old Point go up and down completely randomly.

Pair Corralation between National Bankshares and Old Point

Given the investment horizon of 90 days National Bankshares is expected to under-perform the Old Point. In addition to that, National Bankshares is 1.16 times more volatile than Old Point Financial. It trades about -0.02 of its total potential returns per unit of risk. Old Point Financial is currently generating about 0.17 per unit of volatility. If you would invest  2,557  in Old Point Financial on December 28, 2024 and sell it today you would earn a total of  445.00  from holding Old Point Financial or generate 17.4% return on investment over 90 days.

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

National Bankshares  vs.  Old Point Financial

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.

Old Point Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old Point Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Old Point reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bankshares and Old Point

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

The idea behind National Bankshares and Old Point Financial 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.