Correlation Between Truxton and Southern Michigan

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

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

Diversification Opportunities for Truxton and Southern Michigan

0.77

Correlation Coefficient

Truxton  Southern Michigan

Poor diversification

The 3 months correlation between Truxton and Southern is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Truxton 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 Truxton 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 Truxton 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 Truxton i.e., Truxton and Southern Michigan go up and down completely randomly.

Pair Corralation between Truxton and Southern Michigan

Given the investment horizon of 90 days Truxton is expected to generate 6.43 times less return on investment than Southern Michigan. In addition to that, Truxton is 1.41 times more volatile than Southern Michigan Bancorp. It trades about 0.02 of its total potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.21 per unit of volatility. If you would invest  1,840  in Southern Michigan Bancorp on October 10, 2024 and sell it today you would earn a total of  85.00  from holding Southern Michigan Bancorp or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

Truxton  vs.  Southern Michigan Bancorp

Truxton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Truxton has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Truxton is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Southern Michigan Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Southern Michigan may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Truxton and Southern Michigan

The main advantage of trading using opposite Truxton and Southern Michigan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Truxton 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 Truxton 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..