Correlation Between Bank and First Bancorp

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

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

Diversification Opportunities for Bank and First Bancorp

0.0

Correlation Coefficient

Bank  First Bancorp

Pay attention - limited upside

The 3 months correlation between Bank and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Bank and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and 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 Bank are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Bank i.e., Bank and First Bancorp go up and down completely randomly.

Pair Corralation between Bank and First Bancorp

If you would invest (100.00) in Bank on December 27, 2024 and sell it today you would earn a total of  100.00  from holding Bank or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Bank  vs.  First Bancorp

Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

First Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, First Bancorp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Bank and First Bancorp

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

The idea behind Bank and First Bancorp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.