Correlation Between Virginia National and City Holding

Can any of the company-specific risk be diversified away by investing in both Virginia National and City Holding 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 City Holding 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 City Holding, you can compare the effects of market volatilities on Virginia National and City Holding 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 City Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virginia National and City Holding.

Diversification Opportunities for Virginia National and City Holding

0.67

Correlation Coefficient

Virginia National  City Holding

Poor diversification

The 3 months correlation between Virginia and City is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and City Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Holding 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 City Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Holding has no effect on the direction of Virginia National i.e., Virginia National and City Holding go up and down completely randomly.

Pair Corralation between Virginia National and City Holding

Given the investment horizon of 90 days Virginia National Bankshares is expected to under-perform the City Holding. In addition to that, Virginia National is 1.35 times more volatile than City Holding. It trades about -0.02 of its total potential returns per unit of risk. City Holding is currently generating about 0.0 per unit of volatility. If you would invest  11,984  in City Holding on December 28, 2024 and sell it today you would lose (11.00) from holding City Holding or give up 0.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Virginia National Bankshares  vs.  City Holding

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.

City Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, City Holding is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Virginia National and City Holding

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

The idea behind Virginia National Bankshares and City Holding 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.