Correlation Between National Bank and FS Bancorp

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

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

Diversification Opportunities for National Bank and FS Bancorp

0.85

Correlation Coefficient

National Bank  FS Bancorp

Very poor diversification

The 3 months correlation between National and FSBW is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Bancorp and National 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 National Bank Holdings are associated (or correlated) with FS Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Bancorp has no effect on the direction of National Bank i.e., National Bank and FS Bancorp go up and down completely randomly.

Pair Corralation between National Bank and FS Bancorp

Given the investment horizon of 90 days National Bank Holdings is expected to generate 1.1 times more return on investment than FS Bancorp. However, National Bank is 1.1 times more volatile than FS Bancorp. It trades about 0.07 of its potential returns per unit of risk. FS Bancorp is currently generating about 0.08 per unit of risk. If you would invest  4,334  in National Bank Holdings on September 3, 2024 and sell it today you would earn a total of  440.00  from holding National Bank Holdings or generate 10.15% return on investment over 90 days.

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

National Bank Holdings  vs.  FS Bancorp

National Bank Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FS Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FS Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, FS Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Bank and FS Bancorp

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

The idea behind National Bank Holdings and FS 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.