Correlation Between National Bank and Waterstone Financial

Can any of the company-specific risk be diversified away by investing in both National Bank and Waterstone Financial 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 Waterstone Financial 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 Waterstone Financial, you can compare the effects of market volatilities on National Bank and Waterstone Financial 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 Waterstone Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Waterstone Financial.

Diversification Opportunities for National Bank and Waterstone Financial

0.7

Correlation Coefficient

National Bank  Waterstone Financial

Poor diversification

The 3 months correlation between National and Waterstone is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of National Bank i.e., National Bank and Waterstone Financial go up and down completely randomly.

Pair Corralation between National Bank and Waterstone Financial

Given the investment horizon of 90 days National Bank Holdings is expected to generate 1.21 times more return on investment than Waterstone Financial. However, National Bank is 1.21 times more volatile than Waterstone Financial. It trades about 0.07 of its potential returns per unit of risk. Waterstone Financial is currently generating about 0.03 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	Significant
Accuracy	100.0%
Values	Daily Returns

National Bank Holdings  vs.  Waterstone Financial

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.

Waterstone Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waterstone Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with National Bank and Waterstone Financial

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

The idea behind National Bank Holdings and Waterstone 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 Global Correlations module to find global opportunities by holding instruments from different markets.