Correlation Between Virginia National and TFS Financial

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

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

Diversification Opportunities for Virginia National and TFS Financial

0.65

Correlation Coefficient

Virginia National  TFS Financial

Poor diversification

The 3 months correlation between Virginia and TFS is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and TFS Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFS Financial and Virginia National 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 Virginia National Bankshares are associated (or correlated) with TFS Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFS Financial has no effect on the direction of Virginia National i.e., Virginia National and TFS Financial go up and down completely randomly.

Pair Corralation between Virginia National and TFS Financial

Given the investment horizon of 90 days Virginia National is expected to generate 3.03 times less return on investment than TFS Financial. But when comparing it to its historical volatility, Virginia National Bankshares is 1.28 times less risky than TFS Financial. It trades about 0.08 of its potential returns per unit of risk. TFS Financial is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,285  in TFS Financial on September 1, 2024 and sell it today you would earn a total of  129.00  from holding TFS Financial or generate 10.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Virginia National Bankshares  vs.  TFS Financial

Virginia National

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virginia National Bankshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Virginia National is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

TFS Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TFS Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, TFS Financial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Virginia National and TFS Financial

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

The idea behind Virginia National Bankshares and TFS Financial 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.