Correlation Between National Bank and First Business
Can any of the company-specific risk be diversified away by investing in both National Bank 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 National Bank and First Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Bank Holdings and First Business Financial, you can compare the effects of market volatilities on National Bank 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 National Bank with a short position of First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Bank and First Business.
Diversification Opportunities for National Bank and First Business
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings 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 National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and First Business go up and down completely randomly.
Pair Corralation between National Bank and First Business
Given the investment horizon of 90 days National Bank is expected to generate 1.67 times less return on investment than First Business. In addition to that, National Bank is 1.01 times more volatile than First Business Financial. It trades about 0.13 of its total potential returns per unit of risk. First Business Financial is currently generating about 0.22 per unit of volatility. If you would invest 4,456 in First Business Financial on August 28, 2024 and sell it today you would earn a total of 691.00 from holding First Business Financial or generate 15.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Bank Holdings vs. First Business Financial
Performance |
| Timeline |
| National Bank Holdings |
| First Business Financial |
National Bank and First Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Bank and First Business
The main advantage of trading using opposite National Bank and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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.| National Bank vs. Fifth Third Bancorp | National Bank vs. Zions Bancorporation | National Bank vs. Huntington Bancshares Incorporated | National Bank vs. Comerica |
| First Business vs. Fifth Third Bancorp | First Business vs. Zions Bancorporation | First Business vs. Huntington Bancshares Incorporated | First Business vs. Comerica |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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