Correlation Between Rhinebeck Bancorp and Oak Valley

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

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

Diversification Opportunities for Rhinebeck Bancorp and Oak Valley

0.6

Correlation Coefficient

Rhinebeck Bancorp  Oak Valley

Poor diversification

The 3 months correlation between Rhinebeck and Oak is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rhinebeck Bancorp and Oak Valley Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oak Valley Bancorp and Rhinebeck Bancorp 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 Rhinebeck Bancorp are associated (or correlated) with Oak Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oak Valley Bancorp has no effect on the direction of Rhinebeck Bancorp i.e., Rhinebeck Bancorp and Oak Valley go up and down completely randomly.

Pair Corralation between Rhinebeck Bancorp and Oak Valley

Given the investment horizon of 90 days Rhinebeck Bancorp is expected to generate 2.01 times less return on investment than Oak Valley. But when comparing it to its historical volatility, Rhinebeck Bancorp is 2.73 times less risky than Oak Valley. It trades about 0.39 of its potential returns per unit of risk. Oak Valley Bancorp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,705  in Oak Valley Bancorp on August 31, 2024 and sell it today you would earn a total of  421.00  from holding Oak Valley Bancorp or generate 15.56% return on investment over 90 days.

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

Rhinebeck Bancorp  vs.  Oak Valley Bancorp

Rhinebeck Bancorp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rhinebeck Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting forward-looking signals, Rhinebeck Bancorp sustained solid returns over the last few months and may actually be approaching a breakup point.

Oak Valley Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oak Valley Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, Oak Valley showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rhinebeck Bancorp and Oak Valley

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

The idea behind Rhinebeck Bancorp and Oak Valley Bancorp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.