Correlation Between First National and Shore Bancshares

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

By analyzing existing cross correlation between First National Corp and Shore Bancshares, you can compare the effects of market volatilities on First National and Shore Bancshares 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 First National with a short position of Shore Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Shore Bancshares.

Diversification Opportunities for First National and Shore Bancshares

0.88

Correlation Coefficient

First National  Shore Bancshares

Very poor diversification

The 3 months correlation between First and Shore is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding First National Corp and Shore Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shore Bancshares and First 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 First National Corp are associated (or correlated) with Shore Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shore Bancshares has no effect on the direction of First National i.e., First National and Shore Bancshares go up and down completely randomly.

Pair Corralation between First National and Shore Bancshares

Given the investment horizon of 90 days First National Corp is expected to generate 0.81 times more return on investment than Shore Bancshares. However, First National Corp is 1.23 times less risky than Shore Bancshares. It trades about 0.28 of its potential returns per unit of risk. Shore Bancshares is currently generating about 0.11 per unit of risk. If you would invest  1,739  in First National Corp on September 28, 2024 and sell it today you would earn a total of  638.00  from holding First National Corp or generate 36.69% return on investment over 90 days.

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

First National Corp  vs.  Shore Bancshares

First National Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First National Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, First National exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shore Bancshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shore Bancshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Shore Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First National and Shore Bancshares

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

The idea behind First National Corp and Shore Bancshares 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.