Correlation Between Prime Meridian and VersaBank

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

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

Diversification Opportunities for Prime Meridian and VersaBank

0.83

Correlation Coefficient

Prime Meridian  VersaBank

Very poor diversification

The 3 months correlation between Prime and VersaBank is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Prime Meridian Holding and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank and Prime Meridian 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 Prime Meridian Holding are associated (or correlated) with VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Prime Meridian i.e., Prime Meridian and VersaBank go up and down completely randomly.

Pair Corralation between Prime Meridian and VersaBank

Given the investment horizon of 90 days Prime Meridian is expected to generate 1.56 times less return on investment than VersaBank. But when comparing it to its historical volatility, Prime Meridian Holding is 1.32 times less risky than VersaBank. It trades about 0.19 of its potential returns per unit of risk. VersaBank is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,338  in VersaBank on August 31, 2024 and sell it today you would earn a total of  456.00  from holding VersaBank or generate 34.08% return on investment over 90 days.

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

Prime Meridian Holding  vs.  VersaBank

Prime Meridian Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Meridian Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Prime Meridian reported solid returns over the last few months and may actually be approaching a breakup point.

VersaBank

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, VersaBank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prime Meridian and VersaBank

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

The idea behind Prime Meridian Holding and VersaBank 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.