Correlation Between Affinity Bancshares and American National

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

By analyzing existing cross correlation between Affinity Bancshares and American National Bankshares, you can compare the effects of market volatilities on Affinity Bancshares and American National 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 Affinity Bancshares with a short position of American National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Affinity Bancshares and American National.

Diversification Opportunities for Affinity Bancshares and American National

-0.22

Correlation Coefficient

Affinity Bancshares  American National

Very good diversification

The 3 months correlation between Affinity and American is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Affinity Bancshares and American National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American National and Affinity Bancshares 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 Affinity Bancshares are associated (or correlated) with American National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American National has no effect on the direction of Affinity Bancshares i.e., Affinity Bancshares and American National go up and down completely randomly.

Pair Corralation between Affinity Bancshares and American National

Given the investment horizon of 90 days Affinity Bancshares is expected to generate 2.88 times less return on investment than American National. But when comparing it to its historical volatility, Affinity Bancshares is 1.36 times less risky than American National. It trades about 0.01 of its potential returns per unit of risk. American National Bankshares is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,721  in American National Bankshares on January 25, 2024 and sell it today you would earn a total of  55.00  from holding American National Bankshares or generate 1.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.67%
Values	Daily Returns

Affinity Bancshares  vs.  American National Bankshares

Affinity Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Affinity Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

American National

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, American National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Affinity Bancshares and American National

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

The idea behind Affinity Bancshares and American National Bankshares 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.