Correlation Between National Bank and Red River
Can any of the company-specific risk be diversified away by investing in both National Bank and Red River 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 National Bank and Red River into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank Holdings and Red River Bancshares, you can compare the effects of market volatilities on National Bank and Red River 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 National Bank with a short position of Red River. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and Red River.
Diversification Opportunities for National Bank and Red River
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between National and Red is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Red River Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red River Bancshares and National Bank 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 National Bank Holdings are associated (or correlated) with Red River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red River Bancshares has no effect on the direction of National Bank i.e., National Bank and Red River go up and down completely randomly.
Pair Corralation between National Bank and Red River
Given the investment horizon of 90 days National Bank is expected to generate 1.71 times less return on investment than Red River. In addition to that, National Bank is 1.8 times more volatile than Red River Bancshares. It trades about 0.11 of its total potential returns per unit of risk. Red River Bancshares is currently generating about 0.33 per unit of volatility. If you would invest 5,287 in Red River Bancshares on August 29, 2024 and sell it today you would earn a total of 747.00 from holding Red River Bancshares or generate 14.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank Holdings vs. Red River Bancshares
Performance |
| Timeline |
| National Bank Holdings |
| Red River Bancshares |
National Bank and Red River Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and Red River
The main advantage of trading using opposite National Bank and Red River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank position performs unexpectedly, Red River 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 Red River will offset losses from the drop in Red River's long position.The idea behind National Bank Holdings and Red River 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.| Red River vs. Home Federal Bancorp | Red River vs. Magyar Bancorp | Red River vs. Community West Bancshares | Red River vs. Rhinebeck Bancorp |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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