Correlation Between Virginia National and MT Bank

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

Diversification Opportunities for Virginia National and MT Bank

0.63

Correlation Coefficient

Virginia National  MT Bank

Poor diversification

The 3 months correlation between Virginia and MTB is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and MT Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MT Bank 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 MT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MT Bank has no effect on the direction of Virginia National i.e., Virginia National and MT Bank go up and down completely randomly.

Pair Corralation between Virginia National and MT Bank

Given the investment horizon of 90 days Virginia National is expected to generate 4.24 times less return on investment than MT Bank. But when comparing it to its historical volatility, Virginia National Bankshares is 1.22 times less risky than MT Bank. It trades about 0.06 of its potential returns per unit of risk. MT Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  17,132  in MT Bank on September 1, 2024 and sell it today you would earn a total of  4,867  from holding MT Bank or generate 28.41% return on investment over 90 days.

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

Virginia National Bankshares  vs.  MT Bank

Virginia National

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virginia National Bankshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

MT Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MT Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MT Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Virginia National and MT Bank

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

The idea behind Virginia National Bankshares and MT 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.