Correlation Between North Dallas and Main Street

Can any of the company-specific risk be diversified away by investing in both North Dallas and Main Street 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 Main Street 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 Main Street Financial, you can compare the effects of market volatilities on North Dallas and Main Street 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 Main Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Dallas and Main Street.

Diversification Opportunities for North Dallas and Main Street

0.58

Correlation Coefficient

North Dallas  Main Street

Very weak diversification

The 3 months correlation between North and Main is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding North Dallas Bank and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial 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 Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of North Dallas i.e., North Dallas and Main Street go up and down completely randomly.

Pair Corralation between North Dallas and Main Street

Given the investment horizon of 90 days North Dallas Bank is expected to under-perform the Main Street. But the pink sheet apears to be less risky and, when comparing its historical volatility, North Dallas Bank is 1.74 times less risky than Main Street. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Main Street Financial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,667  in Main Street Financial on October 6, 2024 and sell it today you would lose (236.00) from holding Main Street Financial or give up 14.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.3%
Values	Daily Returns

North Dallas Bank  vs.  Main Street Financial

North Dallas Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North Dallas Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, North Dallas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Main Street Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Main Street is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with North Dallas and Main Street

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

The idea behind North Dallas Bank and Main Street 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.