Correlation Between Oak Ridge and Norwood Financial

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

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

Diversification Opportunities for Oak Ridge and Norwood Financial

0.6

Correlation Coefficient

Oak Ridge  Norwood Financial

Poor diversification

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

Pair Corralation between Oak Ridge and Norwood Financial

Given the investment horizon of 90 days Oak Ridge Financial is expected to generate 0.16 times more return on investment than Norwood Financial. However, Oak Ridge Financial is 6.31 times less risky than Norwood Financial. It trades about 0.15 of its potential returns per unit of risk. Norwood Financial Corp is currently generating about -0.21 per unit of risk. If you would invest  2,025  in Oak Ridge Financial on September 22, 2024 and sell it today you would earn a total of  35.00  from holding Oak Ridge Financial or generate 1.73% return on investment over 90 days.

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

Oak Ridge Financial  vs.  Norwood Financial Corp

Oak Ridge Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oak Ridge Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Oak Ridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Norwood Financial Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Norwood Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Oak Ridge and Norwood Financial

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

The idea behind Oak Ridge Financial and Norwood Financial Corp 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.