Correlation Between VersaBank and Legend Power

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

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

Diversification Opportunities for VersaBank and Legend Power

0.04

Correlation Coefficient

VersaBank  Legend Power

Significant diversification

The 3 months correlation between VersaBank and Legend is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and Legend Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Power Systems and VersaBank 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 VersaBank are associated (or correlated) with Legend Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Power Systems has no effect on the direction of VersaBank i.e., VersaBank and Legend Power go up and down completely randomly.

Pair Corralation between VersaBank and Legend Power

Assuming the 90 days trading horizon VersaBank is expected to generate 8.32 times less return on investment than Legend Power. But when comparing it to its historical volatility, VersaBank is 2.94 times less risky than Legend Power. It trades about 0.07 of its potential returns per unit of risk. Legend Power Systems is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Legend Power Systems on October 24, 2024 and sell it today you would earn a total of  3.00  from holding Legend Power Systems or generate 15.0% return on investment over 90 days.

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

VersaBank  vs.  Legend Power Systems

VersaBank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Legend Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legend Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with VersaBank and Legend Power

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

The idea behind VersaBank and Legend Power Systems 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.