Correlation Between National Bankshares and First Financial

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

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

Diversification Opportunities for National Bankshares and First Financial

0.88

Correlation Coefficient

National Bankshares  First Financial

Very poor diversification

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

Pair Corralation between National Bankshares and First Financial

Given the investment horizon of 90 days National Bankshares is expected to generate 0.93 times more return on investment than First Financial. However, National Bankshares is 1.08 times less risky than First Financial. It trades about 0.12 of its potential returns per unit of risk. First Financial is currently generating about 0.08 per unit of risk. If you would invest  2,766  in National Bankshares on September 3, 2024 and sell it today you would earn a total of  444.00  from holding National Bankshares or generate 16.05% return on investment over 90 days.

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

National Bankshares  vs.  First Financial

National Bankshares

Risk-Adjusted Performance

9 of 100

OK

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

First Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Bankshares and First Financial

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

The idea behind National Bankshares and First 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..