Correlation Between North Dallas and Southern California

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

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

Diversification Opportunities for North Dallas and Southern California

-0.44

Correlation Coefficient

North Dallas  Southern California

Very good diversification

The 3 months correlation between North and Southern is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding North Dallas Bank and Southern California Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California and North Dallas 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 North Dallas Bank are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California has no effect on the direction of North Dallas i.e., North Dallas and Southern California go up and down completely randomly.

Pair Corralation between North Dallas and Southern California

Given the investment horizon of 90 days North Dallas Bank is expected to generate 0.99 times more return on investment than Southern California. However, North Dallas Bank is 1.01 times less risky than Southern California. It trades about 0.19 of its potential returns per unit of risk. Southern California Bancorp is currently generating about -0.15 per unit of risk. If you would invest  4,650  in North Dallas Bank on December 29, 2024 and sell it today you would earn a total of  850.00  from holding North Dallas Bank or generate 18.28% return on investment over 90 days.

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

North Dallas Bank  vs.  Southern California Bancorp

North Dallas Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in North Dallas Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, North Dallas sustained solid returns over the last few months and may actually be approaching a breakup point.

Southern California

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern California Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with North Dallas and Southern California

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

The idea behind North Dallas Bank and Southern California 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.