Correlation Between First Business and Main Street
Can any of the company-specific risk be diversified away by investing in both First Business and Main Street 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 Main Street 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 Main Street Financial, you can compare the effects of market volatilities on First Business and Main Street 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 Main Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Main Street.
Diversification Opportunities for First Business and Main Street
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Main is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial 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 Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of First Business i.e., First Business and Main Street go up and down completely randomly.
Pair Corralation between First Business and Main Street
Given the investment horizon of 90 days First Business Financial is expected to generate 0.87 times more return on investment than Main Street. However, First Business Financial is 1.15 times less risky than Main Street. It trades about 0.04 of its potential returns per unit of risk. Main Street Financial is currently generating about 0.0 per unit of risk. If you would invest 3,558 in First Business Financial on September 3, 2024 and sell it today you would earn a total of 1,454 from holding First Business Financial or generate 40.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Business Financial vs. Main Street Financial
Performance |
| Timeline |
| First Business Financial |
| Main Street Financial |
First Business and Main Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Business and Main Street
The main advantage of trading using opposite First Business and Main Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business position performs unexpectedly, Main Street 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 Main Street will offset losses from the drop in Main Street's long position.| First Business vs. JPMorgan Chase Co | First Business vs. Citigroup | First Business vs. Wells Fargo | First Business vs. Toronto Dominion Bank |
| Main Street vs. CCFNB Bancorp | Main Street vs. Burke Herbert Financial | Main Street vs. First IC | Main Street vs. Enterprise Financial Services |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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