Correlation Between Financial and VersaBank
Can any of the company-specific risk be diversified away by investing in both Financial and VersaBank 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 Financial and VersaBank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial 15 Split and VersaBank, you can compare the effects of market volatilities on Financial and VersaBank 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 Financial with a short position of VersaBank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and VersaBank.
Diversification Opportunities for Financial and VersaBank
Almost no diversification
The 3 months correlation between Financial and VersaBank is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and VersaBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VersaBank and Financial 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 Financial 15 Split are associated (or correlated) with VersaBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VersaBank has no effect on the direction of Financial i.e., Financial and VersaBank go up and down completely randomly.
Pair Corralation between Financial and VersaBank
Assuming the 90 days trading horizon Financial is expected to generate 2.05 times less return on investment than VersaBank. But when comparing it to its historical volatility, Financial 15 Split is 1.25 times less risky than VersaBank. It trades about 0.06 of its potential returns per unit of risk. VersaBank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,095 in VersaBank on September 12, 2024 and sell it today you would earn a total of 1,103 from holding VersaBank or generate 100.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial 15 Split vs. VersaBank
Performance |
| Timeline |
| Financial 15 Split |
| VersaBank |
Financial and VersaBank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial and VersaBank
The main advantage of trading using opposite Financial and VersaBank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial position performs unexpectedly, VersaBank 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 VersaBank will offset losses from the drop in VersaBank's long position.| Financial vs. Dividend 15 Split | Financial vs. Dividend Growth Split | Financial vs. North American Financial | Financial vs. Life Banc Split |
| VersaBank vs. Brompton Lifeco Split | VersaBank vs. North American Financial | VersaBank vs. Prime Dividend Corp | VersaBank vs. Financial 15 Split |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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