Correlation Between Financial Institutions and Business First
Can any of the company-specific risk be diversified away by investing in both Financial Institutions and Business First 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 Financial Institutions and Business First into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Institutions and Business First Bancshares, you can compare the effects of market volatilities on Financial Institutions and Business First 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 Financial Institutions with a short position of Business First. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Institutions and Business First.
Diversification Opportunities for Financial Institutions and Business First
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and Business is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions and Business First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business First Bancshares and Financial Institutions 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 Financial Institutions are associated (or correlated) with Business First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business First Bancshares has no effect on the direction of Financial Institutions i.e., Financial Institutions and Business First go up and down completely randomly.
Pair Corralation between Financial Institutions and Business First
Given the investment horizon of 90 days Financial Institutions is expected to generate 1.02 times less return on investment than Business First. But when comparing it to its historical volatility, Financial Institutions is 1.04 times less risky than Business First. It trades about 0.03 of its potential returns per unit of risk. Business First Bancshares is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,223 in Business First Bancshares on August 24, 2024 and sell it today you would earn a total of 615.00 from holding Business First Bancshares or generate 27.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Institutions vs. Business First Bancshares
Performance |
| Timeline |
| Financial Institutions |
| Business First Bancshares |
Financial Institutions and Business First Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Institutions and Business First
The main advantage of trading using opposite Financial Institutions and Business First positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions position performs unexpectedly, Business First 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 Business First will offset losses from the drop in Business First's long position.| Financial Institutions vs. Banco Bradesco SA | Financial Institutions vs. Itau Unibanco Banco | Financial Institutions vs. Banco Santander Brasil | Financial Institutions vs. Western Alliance Bancorporation |
| Business First vs. First Community | Business First vs. Community West Bancshares | Business First vs. First Financial Northwest | Business First vs. First Northwest 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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