Correlation Between Solera National and SouthPoint Bancshares

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

By analyzing existing cross correlation between Solera National Bancorp and SouthPoint Bancshares, you can compare the effects of market volatilities on Solera National and SouthPoint Bancshares 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 Solera National with a short position of SouthPoint Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solera National and SouthPoint Bancshares.

Diversification Opportunities for Solera National and SouthPoint Bancshares

0.62

Correlation Coefficient

Solera National  SouthPoint Bancshares

Poor diversification

The 3 months correlation between Solera and SouthPoint is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Solera National Bancorp and SouthPoint Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SouthPoint Bancshares and Solera National 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 Solera National Bancorp are associated (or correlated) with SouthPoint Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SouthPoint Bancshares has no effect on the direction of Solera National i.e., Solera National and SouthPoint Bancshares go up and down completely randomly.

Pair Corralation between Solera National and SouthPoint Bancshares

Given the investment horizon of 90 days Solera National is expected to generate 1.91 times less return on investment than SouthPoint Bancshares. In addition to that, Solera National is 2.25 times more volatile than SouthPoint Bancshares. It trades about 0.05 of its total potential returns per unit of risk. SouthPoint Bancshares is currently generating about 0.23 per unit of volatility. If you would invest  3,312  in SouthPoint Bancshares on September 17, 2024 and sell it today you would earn a total of  518.00  from holding SouthPoint Bancshares or generate 15.64% return on investment over 90 days.

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

Solera National Bancorp  vs.  SouthPoint Bancshares

Solera National Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Solera National Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Solera National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SouthPoint Bancshares

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SouthPoint Bancshares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SouthPoint Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solera National and SouthPoint Bancshares

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

The idea behind Solera National Bancorp and SouthPoint Bancshares 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.