Correlation Between Oak Valley and John Marshall

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

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

Diversification Opportunities for Oak Valley and John Marshall

0.81

Correlation Coefficient

Oak Valley  John Marshall

Very poor diversification

The 3 months correlation between Oak and John is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Oak Valley Bancorp and John Marshall Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on John Marshall Bancorp and Oak Valley 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 Oak Valley Bancorp are associated (or correlated) with John Marshall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of John Marshall Bancorp has no effect on the direction of Oak Valley i.e., Oak Valley and John Marshall go up and down completely randomly.

Pair Corralation between Oak Valley and John Marshall

Given the investment horizon of 90 days Oak Valley is expected to generate 1.9 times less return on investment than John Marshall. But when comparing it to its historical volatility, Oak Valley Bancorp is 1.07 times less risky than John Marshall. It trades about 0.11 of its potential returns per unit of risk. John Marshall Bancorp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,876  in John Marshall Bancorp on August 14, 2024 and sell it today you would earn a total of  722.00  from holding John Marshall Bancorp or generate 38.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Oak Valley Bancorp  vs.  John Marshall Bancorp

Oak Valley Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oak Valley Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting essential indicators, Oak Valley showed solid returns over the last few months and may actually be approaching a breakup point.

John Marshall Bancorp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in John Marshall Bancorp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, John Marshall sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oak Valley and John Marshall

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

The idea behind Oak Valley Bancorp and John Marshall 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.