Correlation Between Potomac Bancshares and North Dallas

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

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

Diversification Opportunities for Potomac Bancshares and North Dallas

0.02

Correlation Coefficient

Potomac Bancshares  North Dallas

Significant diversification

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

Pair Corralation between Potomac Bancshares and North Dallas

Given the investment horizon of 90 days Potomac Bancshares is expected to generate 2.66 times more return on investment than North Dallas. However, Potomac Bancshares is 2.66 times more volatile than North Dallas Bank. It trades about 0.08 of its potential returns per unit of risk. North Dallas Bank is currently generating about -0.22 per unit of risk. If you would invest  1,463  in Potomac Bancshares on March 2, 2024 and sell it today you would earn a total of  47.00  from holding Potomac Bancshares or generate 3.21% return on investment over 90 days.

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

Potomac Bancshares  vs.  North Dallas Bank

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.

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.

Pair Trading with Potomac Bancshares and North Dallas

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

The idea behind Potomac Bancshares and North Dallas Bank 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 CEOs Directory module to screen CEOs from public companies around the world.