Correlation Between Solvay Bank and Southern Michigan

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

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

Diversification Opportunities for Solvay Bank and Southern Michigan

0.24

Correlation Coefficient

Solvay Bank  Southern Michigan

Modest diversification

The 3 months correlation between Solvay and Southern is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Solvay Bank Corp and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp and Solvay Bank 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 Solvay Bank Corp are associated (or correlated) with Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Solvay Bank i.e., Solvay Bank and Southern Michigan go up and down completely randomly.

Pair Corralation between Solvay Bank and Southern Michigan

Given the investment horizon of 90 days Solvay Bank Corp is expected to generate 4.68 times more return on investment than Southern Michigan. However, Solvay Bank is 4.68 times more volatile than Southern Michigan Bancorp. It trades about 0.13 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about -0.02 per unit of risk. If you would invest  2,562  in Solvay Bank Corp on December 28, 2024 and sell it today you would earn a total of  398.00  from holding Solvay Bank Corp or generate 15.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

Solvay Bank Corp  vs.  Southern Michigan Bancorp

Solvay Bank Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay Bank Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, Solvay Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Southern Michigan Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Solvay Bank and Southern Michigan

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

The idea behind Solvay Bank Corp and Southern Michigan 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.