Correlation Between National Bankshares and Westamerica Bancorporation

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

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

Diversification Opportunities for National Bankshares and Westamerica Bancorporation

0.88

Correlation Coefficient

National Bankshares  Westamerica Bancorporation

Very poor diversification

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

Pair Corralation between National Bankshares and Westamerica Bancorporation

Given the investment horizon of 90 days National Bankshares is expected to generate 1.1 times less return on investment than Westamerica Bancorporation. In addition to that, National Bankshares is 1.12 times more volatile than Westamerica Bancorporation. It trades about 0.03 of its total potential returns per unit of risk. Westamerica Bancorporation is currently generating about 0.04 per unit of volatility. If you would invest  4,991  in Westamerica Bancorporation on September 23, 2024 and sell it today you would earn a total of  182.00  from holding Westamerica Bancorporation or generate 3.65% 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.  Westamerica Bancorp.

National Bankshares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bankshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, National Bankshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Westamerica Bancorporation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Westamerica Bancorporation is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with National Bankshares and Westamerica Bancorporation

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

The idea behind National Bankshares and Westamerica Bancorporation 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.