Correlation Between North Dallas and Potomac Bancshares

Can any of the company-specific risk be diversified away by investing in both North Dallas and Potomac Bancshares 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 Potomac Bancshares 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 Potomac Bancshares, you can compare the effects of market volatilities on North Dallas and Potomac Bancshares 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 Potomac Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of North Dallas and Potomac Bancshares.

Diversification Opportunities for North Dallas and Potomac Bancshares

0.02

Correlation Coefficient

North Dallas  Potomac Bancshares

Significant diversification

The 3 months correlation between North and Potomac is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding North Dallas Bank and Potomac Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potomac 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 Potomac Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potomac Bancshares has no effect on the direction of North Dallas i.e., North Dallas and Potomac Bancshares go up and down completely randomly.

Pair Corralation between North Dallas and Potomac Bancshares

Given the investment horizon of 90 days North Dallas Bank is expected to under-perform the Potomac Bancshares. But the pink sheet apears to be less risky and, when comparing its historical volatility, North Dallas Bank is 1.78 times less risky than Potomac Bancshares. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Potomac Bancshares is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,691  in Potomac Bancshares on March 2, 2024 and sell it today you would lose (181.00) from holding Potomac Bancshares or give up 10.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.37%
Values	Daily Returns

North Dallas Bank  vs.  Potomac Bancshares

North Dallas Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days North Dallas Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Potomac Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Potomac Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Potomac Bancshares is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with North Dallas and Potomac Bancshares

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

The idea behind North Dallas Bank and Potomac 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.