Correlation Between First Business and Preferred Bank
Can any of the company-specific risk be diversified away by investing in both First Business and Preferred 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 Preferred 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 Preferred Bank, you can compare the effects of market volatilities on First Business and Preferred 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 Preferred Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Preferred Bank.
Diversification Opportunities for First Business and Preferred Bank
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between First and Preferred is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Preferred Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Bank 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 Preferred Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Bank has no effect on the direction of First Business i.e., First Business and Preferred Bank go up and down completely randomly.
Pair Corralation between First Business and Preferred Bank
Given the investment horizon of 90 days First Business Financial is expected to generate 1.07 times more return on investment than Preferred Bank. However, First Business is 1.07 times more volatile than Preferred Bank. It trades about 0.2 of its potential returns per unit of risk. Preferred Bank is currently generating about 0.18 per unit of risk. If you would invest 4,456 in First Business Financial on August 29, 2024 and sell it today you would earn a total of 637.00 from holding First Business Financial or generate 14.3% 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. Preferred Bank
Performance |
| Timeline |
| First Business Financial |
| Preferred Bank |
First Business and Preferred Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Business and Preferred Bank
The main advantage of trading using opposite First Business and Preferred Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business position performs unexpectedly, Preferred 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 Preferred Bank will offset losses from the drop in Preferred Bank's long position.| First Business vs. Fifth Third Bancorp | First Business vs. Huntington Bancshares Incorporated | First Business vs. MT Bank |
| Preferred Bank vs. Pacific Premier Bancorp | Preferred Bank vs. Heritage Financial | Preferred Bank vs. QCR Holdings | Preferred Bank vs. Lakeland Financial |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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