Correlation Between Preferred Bank and First Business
Can any of the company-specific risk be diversified away by investing in both Preferred 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 Preferred 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 Preferred Bank and First Business Financial, you can compare the effects of market volatilities on Preferred 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 Preferred Bank with a short position of First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preferred Bank and First Business.
Diversification Opportunities for Preferred Bank and First Business
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Preferred and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Bank 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 Preferred 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 Preferred Bank 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 Preferred Bank i.e., Preferred Bank and First Business go up and down completely randomly.
Pair Corralation between Preferred Bank and First Business
Given the investment horizon of 90 days Preferred Bank is expected to generate 1.08 times less return on investment than First Business. But when comparing it to its historical volatility, Preferred Bank is 1.11 times less risky than First Business. It trades about 0.18 of its potential returns per unit of risk. First Business Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 4,460 in First Business Financial on August 25, 2024 and sell it today you would earn a total of 588.00 from holding First Business Financial or generate 13.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Preferred Bank vs. First Business Financial
Performance |
| Timeline |
| Preferred Bank |
| First Business Financial |
Preferred Bank and First Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Preferred Bank and First Business
The main advantage of trading using opposite Preferred Bank and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Preferred 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.| Preferred Bank vs. Pacific Premier Bancorp | Preferred Bank vs. Heritage Financial | Preferred Bank vs. QCR Holdings | Preferred Bank vs. Lakeland Financial |
| First Business vs. Home Federal Bancorp | First Business vs. Lake Shore Bancorp | First Business vs. Old Point Financial | First Business vs. Parke 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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