Correlation Between Spring Valley and Washington Business

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

By analyzing existing cross correlation between Spring Valley Acquisition and Washington Business Bank, you can compare the effects of market volatilities on Spring Valley and Washington Business 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 Spring Valley with a short position of Washington Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spring Valley and Washington Business.

Diversification Opportunities for Spring Valley and Washington Business

-0.39

Correlation Coefficient

Spring Valley  Washington Business

Very good diversification

The 3 months correlation between Spring and Washington is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Spring Valley Acquisition and Washington Business Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Business Bank and Spring Valley 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 Spring Valley Acquisition are associated (or correlated) with Washington Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Business Bank has no effect on the direction of Spring Valley i.e., Spring Valley and Washington Business go up and down completely randomly.

Pair Corralation between Spring Valley and Washington Business

Given the investment horizon of 90 days Spring Valley Acquisition is expected to under-perform the Washington Business. But the stock apears to be less risky and, when comparing its historical volatility, Spring Valley Acquisition is 11.76 times less risky than Washington Business. The stock trades about -0.24 of its potential returns per unit of risk. The Washington Business Bank is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,400  in Washington Business Bank on September 15, 2024 and sell it today you would earn a total of  200.00  from holding Washington Business Bank or generate 5.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	61.9%
Values	Daily Returns

Spring Valley Acquisition  vs.  Washington Business Bank

Spring Valley Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spring Valley Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward indicators, Spring Valley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Washington Business Bank

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Washington Business Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat fragile basic indicators, Washington Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Spring Valley and Washington Business

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

The idea behind Spring Valley Acquisition and Washington Business Bank 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.