Correlation Between Business First and First Community
Can any of the company-specific risk be diversified away by investing in both Business First and First Community 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 Business First and First Community into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Business First Bancshares and First Community, you can compare the effects of market volatilities on Business First and First Community 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 Business First with a short position of First Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of Business First and First Community.
Diversification Opportunities for Business First and First Community
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Business and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Business First Bancshares and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Business First 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 Business First Bancshares are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of Business First i.e., Business First and First Community go up and down completely randomly.
Pair Corralation between Business First and First Community
Given the investment horizon of 90 days Business First Bancshares is expected to generate 2.02 times more return on investment than First Community. However, Business First is 2.02 times more volatile than First Community. It trades about 0.14 of its potential returns per unit of risk. First Community is currently generating about 0.19 per unit of risk. If you would invest 2,522 in Business First Bancshares on August 24, 2024 and sell it today you would earn a total of 273.00 from holding Business First Bancshares or generate 10.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Business First Bancshares vs. First Community
Performance |
| Timeline |
| Business First Bancshares |
| First Community |
Business First and First Community Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Business First and First Community
The main advantage of trading using opposite Business First and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First position performs unexpectedly, First Community 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 First Community will offset losses from the drop in First Community's long position.| Business First vs. First Community | Business First vs. Community West Bancshares | Business First vs. First Financial Northwest | Business First vs. First Northwest Bancorp |
| First Community vs. Community West Bancshares | First Community vs. First Financial Northwest | First Community vs. First Northwest Bancorp | First Community vs. Home Federal 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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