Correlation Between Business First and United Bankshares

Can any of the company-specific risk be diversified away by investing in both Business First and United Bankshares 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 Business First and United Bankshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Business First Bancshares and United Bankshares, you can compare the effects of market volatilities on Business First and United Bankshares 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 Business First with a short position of United Bankshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Business First and United Bankshares.

Diversification Opportunities for Business First and United Bankshares

0.84

Correlation Coefficient

Business First  United Bankshares

Very poor diversification

The 3 months correlation between Business and United is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Business First Bancshares and United Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Bankshares and Business First 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 Business First Bancshares are associated (or correlated) with United Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Bankshares has no effect on the direction of Business First i.e., Business First and United Bankshares go up and down completely randomly.

Pair Corralation between Business First and United Bankshares

Given the investment horizon of 90 days Business First Bancshares is expected to generate 1.34 times more return on investment than United Bankshares. However, Business First is 1.34 times more volatile than United Bankshares. It trades about 0.0 of its potential returns per unit of risk. United Bankshares is currently generating about -0.09 per unit of risk. If you would invest  2,781  in Business First Bancshares on November 19, 2024 and sell it today you would lose (37.00) from holding Business First Bancshares or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Business First Bancshares  vs.  United Bankshares

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Business First is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

United Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Business First and United Bankshares

The main advantage of trading using opposite Business First and United Bankshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First position performs unexpectedly, United Bankshares 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 United Bankshares will offset losses from the drop in United Bankshares' long position.

The idea behind Business First Bancshares and United Bankshares pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.