Correlation Between VersaBank and Community Trust

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

By analyzing existing cross correlation between VersaBank and Community Trust Bancorp, you can compare the effects of market volatilities on VersaBank and Community Trust 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 VersaBank with a short position of Community Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of VersaBank and Community Trust.

Diversification Opportunities for VersaBank and Community Trust

-0.42

Correlation Coefficient

VersaBank  Community Trust

Very good diversification

The 3 months correlation between VersaBank and Community is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and Community Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Trust Bancorp and VersaBank 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 VersaBank are associated (or correlated) with Community Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Trust Bancorp has no effect on the direction of VersaBank i.e., VersaBank and Community Trust go up and down completely randomly.

Pair Corralation between VersaBank and Community Trust

Given the investment horizon of 90 days VersaBank is expected to under-perform the Community Trust. In addition to that, VersaBank is 1.08 times more volatile than Community Trust Bancorp. It trades about -0.08 of its total potential returns per unit of risk. Community Trust Bancorp is currently generating about 0.04 per unit of volatility. If you would invest  4,026  in Community Trust Bancorp on March 7, 2024 and sell it today you would earn a total of  153.00  from holding Community Trust Bancorp or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

VersaBank  vs.  Community Trust Bancorp

VersaBank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Community Trust Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Community Trust Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Community Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with VersaBank and Community Trust

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

The idea behind VersaBank and Community Trust Bancorp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.