Correlation Between Farmers National and International Bancshares
Can any of the company-specific risk be diversified away by investing in both Farmers National and International Bancshares 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 Farmers National and International Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Farmers National Banc and International Bancshares, you can compare the effects of market volatilities on Farmers National and International Bancshares 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 Farmers National with a short position of International Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Farmers National and International Bancshares.
Diversification Opportunities for Farmers National and International Bancshares
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Farmers and International is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Farmers National Banc and International Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Bancshares and Farmers National 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 Farmers National Banc are associated (or correlated) with International Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Bancshares has no effect on the direction of Farmers National i.e., Farmers National and International Bancshares go up and down completely randomly.
Pair Corralation between Farmers National and International Bancshares
Given the investment horizon of 90 days Farmers National is expected to generate 1.85 times less return on investment than International Bancshares. In addition to that, Farmers National is 1.08 times more volatile than International Bancshares. It trades about 0.03 of its total potential returns per unit of risk. International Bancshares is currently generating about 0.06 per unit of volatility. If you would invest 4,333 in International Bancshares on September 12, 2024 and sell it today you would earn a total of 2,717 from holding International Bancshares or generate 62.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Farmers National Banc vs. International Bancshares
Performance |
| Timeline |
| Farmers National Banc |
| International Bancshares |
Farmers National and International Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Farmers National and International Bancshares
The main advantage of trading using opposite Farmers National and International Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farmers National position performs unexpectedly, International Bancshares 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 International Bancshares will offset losses from the drop in International Bancshares' long position.| Farmers National vs. JPMorgan Chase Co | Farmers National vs. Citigroup | Farmers National vs. Wells Fargo | Farmers National vs. Toronto Dominion Bank |
| International Bancshares vs. JPMorgan Chase Co | International Bancshares vs. Citigroup | International Bancshares vs. Wells Fargo | International Bancshares vs. Toronto Dominion Bank |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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