Correlation Between Main Street and First Business
Can any of the company-specific risk be diversified away by investing in both Main Street and First Business 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 Main Street and First Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Main Street Financial and First Business Financial, you can compare the effects of market volatilities on Main Street and First Business 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 Main Street with a short position of First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Street and First Business.
Diversification Opportunities for Main Street and First Business
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Main and First is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Financial and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial and Main Street 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 Main Street Financial are associated (or correlated) with First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Main Street i.e., Main Street and First Business go up and down completely randomly.
Pair Corralation between Main Street and First Business
Given the investment horizon of 90 days Main Street is expected to generate 12.45 times less return on investment than First Business. But when comparing it to its historical volatility, Main Street Financial is 1.75 times less risky than First Business. It trades about 0.04 of its potential returns per unit of risk. First Business Financial is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 4,259 in First Business Financial on September 1, 2024 and sell it today you would earn a total of 753.00 from holding First Business Financial or generate 17.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Main Street Financial vs. First Business Financial
Performance |
| Timeline |
| Main Street Financial |
| First Business Financial |
Main Street and First Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Main Street and First Business
The main advantage of trading using opposite Main Street and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Street position performs unexpectedly, First Business 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 First Business will offset losses from the drop in First Business' long position.| Main Street vs. CCFNB Bancorp | Main Street vs. Burke Herbert Financial | Main Street vs. First IC | Main Street vs. Enterprise Financial Services |
| First Business vs. Affinity Bancshares | First Business vs. Southern California Bancorp | First Business vs. Auburn National Bancorporation | First Business vs. BayCom Corp |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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