Correlation Between Norwood Financial and Main Street
Can any of the company-specific risk be diversified away by investing in both Norwood Financial and Main Street 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 Norwood Financial and Main Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norwood Financial Corp and Main Street Financial, you can compare the effects of market volatilities on Norwood Financial and Main Street 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 Norwood Financial with a short position of Main Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwood Financial and Main Street.
Diversification Opportunities for Norwood Financial and Main Street
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Norwood and Main is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Norwood Financial Corp and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial and Norwood 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 Norwood Financial Corp are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of Norwood Financial i.e., Norwood Financial and Main Street go up and down completely randomly.
Pair Corralation between Norwood Financial and Main Street
Given the investment horizon of 90 days Norwood Financial Corp is expected to generate 2.01 times more return on investment than Main Street. However, Norwood Financial is 2.01 times more volatile than Main Street Financial. It trades about -0.07 of its potential returns per unit of risk. Main Street Financial is currently generating about -0.2 per unit of risk. If you would invest 2,614 in Norwood Financial Corp on November 27, 2024 and sell it today you would lose (64.00) from holding Norwood Financial Corp or give up 2.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Norwood Financial Corp vs. Main Street Financial
Performance |
| Timeline |
| Norwood Financial Corp |
| Main Street Financial |
Norwood Financial and Main Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Norwood Financial and Main Street
The main advantage of trading using opposite Norwood Financial and Main Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwood Financial position performs unexpectedly, Main Street 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 Main Street will offset losses from the drop in Main Street's long position.| Norwood Financial vs. Chemung Financial Corp | Norwood Financial vs. Home Federal Bancorp | Norwood Financial vs. Rhinebeck Bancorp | Norwood Financial vs. Finward Bancorp |
| Main Street vs. CCFNB Bancorp | Main Street vs. Burke Herbert Financial | Main Street vs. First IC | Main Street vs. Enterprise Financial Services |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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