Correlation Between Old Second and Ohio Valley

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

By analyzing existing cross correlation between Old Second Bancorp and Ohio Valley Banc, you can compare the effects of market volatilities on Old Second and Ohio Valley 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 Old Second with a short position of Ohio Valley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Old Second and Ohio Valley.

Diversification Opportunities for Old Second and Ohio Valley

-0.56

Correlation Coefficient

Old Second  Ohio Valley

Excellent diversification

The 3 months correlation between Old and Ohio is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Old Second Bancorp and Ohio Valley Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ohio Valley Banc and Old Second 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 Old Second Bancorp are associated (or correlated) with Ohio Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ohio Valley Banc has no effect on the direction of Old Second i.e., Old Second and Ohio Valley go up and down completely randomly.

Pair Corralation between Old Second and Ohio Valley

Given the investment horizon of 90 days Old Second Bancorp is expected to under-perform the Ohio Valley. But the stock apears to be less risky and, when comparing its historical volatility, Old Second Bancorp is 1.7 times less risky than Ohio Valley. The stock trades about -0.07 of its potential returns per unit of risk. The Ohio Valley Banc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,532  in Ohio Valley Banc on December 26, 2024 and sell it today you would earn a total of  284.00  from holding Ohio Valley Banc or generate 11.22% return on investment over 90 days.

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

Old Second Bancorp  vs.  Ohio Valley Banc

Old Second Bancorp

Risk-Adjusted Performance

Very Weak

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

Ohio Valley Banc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ohio Valley Banc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Ohio Valley exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Old Second and Ohio Valley

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

The idea behind Old Second Bancorp and Ohio Valley Banc 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.