Correlation Between Virginia National and CF Financial

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

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

Diversification Opportunities for Virginia National and CF Financial

0.13

Correlation Coefficient

Virginia National  CF Financial

Average diversification

The 3 months correlation between Virginia and CFFI is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial and Virginia 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 Virginia National Bankshares are associated (or correlated) with CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of Virginia National i.e., Virginia National and CF Financial go up and down completely randomly.

Pair Corralation between Virginia National and CF Financial

Given the investment horizon of 90 days Virginia National is expected to generate 1.06 times less return on investment than CF Financial. But when comparing it to its historical volatility, Virginia National Bankshares is 1.68 times less risky than CF Financial. It trades about 0.01 of its potential returns per unit of risk. CF Financial is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  7,092  in CF Financial on December 29, 2024 and sell it today you would lose (123.00) from holding CF Financial or give up 1.73% of portfolio value over 90 days.

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

Virginia National Bankshares  vs.  CF Financial

Virginia National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virginia National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Virginia National is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

CF Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Virginia National and CF Financial

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

The idea behind Virginia National Bankshares and CF Financial 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..