Correlation Between Power and VersaBank

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

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

Diversification Opportunities for Power and VersaBank

0.89

Correlation Coefficient

Power  VersaBank

Very poor diversification

The 3 months correlation between Power and VersaBank is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Power and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank and Power 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 Power 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 Power i.e., Power and VersaBank go up and down completely randomly.

Pair Corralation between Power and VersaBank

Assuming the 90 days trading horizon Power is expected to generate 1.53 times less return on investment than VersaBank. But when comparing it to its historical volatility, Power is 3.24 times less risky than VersaBank. It trades about 0.12 of its potential returns per unit of risk. VersaBank is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,765  in VersaBank on September 27, 2024 and sell it today you would earn a total of  143.00  from holding VersaBank or generate 8.1% return on investment over 90 days.

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

Power  vs.  VersaBank

Power

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VersaBank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, VersaBank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Power and VersaBank

The main advantage of trading using opposite Power and VersaBank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power 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 Power 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.