Correlation Between Southern Missouri and National Bankshares

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

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

Diversification Opportunities for Southern Missouri and National Bankshares

0.63

Correlation Coefficient

Southern Missouri  National Bankshares

Poor diversification

The 3 months correlation between Southern and National is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Southern Missouri Bancorp and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares and Southern Missouri 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 Southern Missouri Bancorp are associated (or correlated) with National Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of Southern Missouri i.e., Southern Missouri and National Bankshares go up and down completely randomly.

Pair Corralation between Southern Missouri and National Bankshares

Given the investment horizon of 90 days Southern Missouri Bancorp is expected to under-perform the National Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, Southern Missouri Bancorp is 1.14 times less risky than National Bankshares. The stock trades about -0.09 of its potential returns per unit of risk. The National Bankshares is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,873  in National Bankshares on December 30, 2024 and sell it today you would lose (165.00) from holding National Bankshares or give up 5.74% of portfolio value over 90 days.

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

Southern Missouri Bancorp  vs.  National Bankshares

Southern Missouri Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Missouri Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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.

Pair Trading with Southern Missouri and National Bankshares

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

The idea behind Southern Missouri Bancorp and National Bankshares 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 Stocks Directory module to find actively traded stocks across global markets.