Correlation Between VersaBank and New Zealand

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

By analyzing existing cross correlation between VersaBank and New Zealand Energy, you can compare the effects of market volatilities on VersaBank and New Zealand 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 New Zealand. Check out your portfolio center. Please also check ongoing floating volatility patterns of VersaBank and New Zealand.

Diversification Opportunities for VersaBank and New Zealand

-0.35

Correlation Coefficient

VersaBank  New Zealand

Very good diversification

The 3 months correlation between VersaBank and New is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and New Zealand Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Zealand Energy 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 New Zealand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Zealand Energy has no effect on the direction of VersaBank i.e., VersaBank and New Zealand go up and down completely randomly.

Pair Corralation between VersaBank and New Zealand

Assuming the 90 days trading horizon VersaBank is expected to generate 14.85 times less return on investment than New Zealand. But when comparing it to its historical volatility, VersaBank is 20.09 times less risky than New Zealand. It trades about 0.08 of its potential returns per unit of risk. New Zealand Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.00  in New Zealand Energy on October 10, 2024 and sell it today you would earn a total of  79.00  from holding New Zealand Energy or generate 1128.57% return on investment over 90 days.

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

VersaBank  vs.  New Zealand Energy

VersaBank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

New Zealand Energy

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Zealand Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, New Zealand showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VersaBank and New Zealand

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

The idea behind VersaBank and New Zealand Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.