Correlation Between First Business and Community Bank
Can any of the company-specific risk be diversified away by investing in both First Business and Community Bank 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 First Business and Community Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Business Financial and Community Bank System, you can compare the effects of market volatilities on First Business and Community Bank 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 First Business with a short position of Community Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Community Bank.
Diversification Opportunities for First Business and Community Bank
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Community is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Community Bank System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Bank System and First Business 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 First Business Financial are associated (or correlated) with Community Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Bank System has no effect on the direction of First Business i.e., First Business and Community Bank go up and down completely randomly.
Pair Corralation between First Business and Community Bank
Given the investment horizon of 90 days First Business is expected to generate 1.1 times less return on investment than Community Bank. But when comparing it to its historical volatility, First Business Financial is 1.04 times less risky than Community Bank. It trades about 0.22 of its potential returns per unit of risk. Community Bank System is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 6,100 in Community Bank System on August 28, 2024 and sell it today you would earn a total of 1,045 from holding Community Bank System or generate 17.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Business Financial vs. Community Bank System
Performance |
| Timeline |
| First Business Financial |
| Community Bank System |
First Business and Community Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Business and Community Bank
The main advantage of trading using opposite First Business and Community Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business position performs unexpectedly, Community Bank 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 Bank will offset losses from the drop in Community Bank's long position.| First Business vs. Fifth Third Bancorp | First Business vs. Zions Bancorporation | First Business vs. Huntington Bancshares Incorporated | First Business vs. Comerica |
| Community Bank vs. National Bank Holdings | Community Bank vs. Byline Bancorp | Community Bank vs. Home Bancorp | Community Bank vs. Finward 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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