Correlation Between First Business and Southern Missouri
Can any of the company-specific risk be diversified away by investing in both First Business and Southern Missouri 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 Southern Missouri 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 Southern Missouri Bancorp, you can compare the effects of market volatilities on First Business and Southern Missouri 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 Southern Missouri. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Southern Missouri.
Diversification Opportunities for First Business and Southern Missouri
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Southern is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Southern Missouri Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Missouri Bancorp 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 Southern Missouri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Missouri Bancorp has no effect on the direction of First Business i.e., First Business and Southern Missouri go up and down completely randomly.
Pair Corralation between First Business and Southern Missouri
Given the investment horizon of 90 days First Business Financial is expected to generate 1.33 times more return on investment than Southern Missouri. However, First Business is 1.33 times more volatile than Southern Missouri Bancorp. It trades about 0.25 of its potential returns per unit of risk. Southern Missouri Bancorp is currently generating about 0.1 per unit of risk. If you would invest 4,724 in First Business Financial on November 25, 2024 and sell it today you would earn a total of 484.00 from holding First Business Financial or generate 10.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
First Business Financial vs. Southern Missouri Bancorp
Performance |
Timeline |
First Business Financial |
Southern Missouri Bancorp |
First Business and Southern Missouri Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Business and Southern Missouri
The main advantage of trading using opposite First Business and Southern Missouri positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business position performs unexpectedly, Southern Missouri 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 Southern Missouri will offset losses from the drop in Southern Missouri's long position.First Business vs. Affinity Bancshares | ||
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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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