Correlation Between Main Street and Oak Ridge

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

By analyzing existing cross correlation between Main Street Financial and Oak Ridge Financial, you can compare the effects of market volatilities on Main Street and Oak Ridge 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 Main Street with a short position of Oak Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Street and Oak Ridge.

Diversification Opportunities for Main Street and Oak Ridge

0.8

Correlation Coefficient

Main Street  Oak Ridge

Very poor diversification

The 3 months correlation between Main and Oak is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Financial and Oak Ridge Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oak Ridge Financial and Main Street 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 Main Street Financial are associated (or correlated) with Oak Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oak Ridge Financial has no effect on the direction of Main Street i.e., Main Street and Oak Ridge go up and down completely randomly.

Pair Corralation between Main Street and Oak Ridge

Given the investment horizon of 90 days Main Street is expected to generate 1.56 times less return on investment than Oak Ridge. In addition to that, Main Street is 1.41 times more volatile than Oak Ridge Financial. It trades about 0.11 of its total potential returns per unit of risk. Oak Ridge Financial is currently generating about 0.24 per unit of volatility. If you would invest  1,799  in Oak Ridge Financial on September 2, 2024 and sell it today you would earn a total of  276.00  from holding Oak Ridge Financial or generate 15.34% return on investment over 90 days.

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

Main Street Financial  vs.  Oak Ridge Financial

Main Street Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Main Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Oak Ridge Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oak Ridge Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Oak Ridge reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Main Street and Oak Ridge

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

The idea behind Main Street Financial and Oak Ridge Financial 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..