Correlation Between North Dallas and First Ottawa

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

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

Diversification Opportunities for North Dallas and First Ottawa

0.89

Correlation Coefficient

North Dallas  First Ottawa

Very poor diversification

The 3 months correlation between North and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding North Dallas Bank and First Ottawa Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Ottawa Bancshares and North Dallas 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 North Dallas Bank are associated (or correlated) with First Ottawa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Ottawa Bancshares has no effect on the direction of North Dallas i.e., North Dallas and First Ottawa go up and down completely randomly.

Pair Corralation between North Dallas and First Ottawa

Given the investment horizon of 90 days North Dallas is expected to generate 1.25 times less return on investment than First Ottawa. But when comparing it to its historical volatility, North Dallas Bank is 1.09 times less risky than First Ottawa. It trades about 0.13 of its potential returns per unit of risk. First Ottawa Bancshares is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,998  in First Ottawa Bancshares on September 3, 2024 and sell it today you would earn a total of  1,003  from holding First Ottawa Bancshares or generate 9.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

North Dallas Bank  vs.  First Ottawa Bancshares

North Dallas Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North Dallas Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, North Dallas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Ottawa Bancshares

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with North Dallas and First Ottawa

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

The idea behind North Dallas Bank and First Ottawa Bancshares 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.