Correlation Between Village Bank and OP Bancorp

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

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

Diversification Opportunities for Village Bank and OP Bancorp

0.61

Correlation Coefficient

Village Bank  OP Bancorp

Poor diversification

The 3 months correlation between Village and OPBK is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Village Bank and and OP Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OP Bancorp and Village Bank 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 Village Bank and are associated (or correlated) with OP Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OP Bancorp has no effect on the direction of Village Bank i.e., Village Bank and OP Bancorp go up and down completely randomly.

Pair Corralation between Village Bank and OP Bancorp

Given the investment horizon of 90 days Village Bank and is expected to generate 54.17 times more return on investment than OP Bancorp. However, Village Bank is 54.17 times more volatile than OP Bancorp. It trades about 0.1 of its potential returns per unit of risk. OP Bancorp is currently generating about 0.14 per unit of risk. If you would invest  3,920  in Village Bank and on September 2, 2024 and sell it today you would earn a total of  3,860  from holding Village Bank and or generate 98.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	70.97%
Values	Daily Returns

Village Bank and  vs.  OP Bancorp

Village Bank

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Village Bank and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather unsteady technical and fundamental indicators, Village Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

OP Bancorp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in OP Bancorp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, OP Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Village Bank and OP Bancorp

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

The idea behind Village Bank and and OP 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.