Correlation Between Sierra Bancorp and First Business

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

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

Diversification Opportunities for Sierra Bancorp and First Business

0.92

Correlation Coefficient

Sierra Bancorp  First Business

Almost no diversification

The 3 months correlation between Sierra and First is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Bancorp 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 Sierra Bancorp 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 Sierra Bancorp 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 Sierra Bancorp i.e., Sierra Bancorp and First Business go up and down completely randomly.

Pair Corralation between Sierra Bancorp and First Business

Given the investment horizon of 90 days Sierra Bancorp is expected to under-perform the First Business. In addition to that, Sierra Bancorp is 1.02 times more volatile than First Business Financial. It trades about -0.01 of its total potential returns per unit of risk. First Business Financial is currently generating about 0.0 per unit of volatility. If you would invest  4,673  in First Business Financial on October 25, 2024 and sell it today you would lose (14.00) from holding First Business Financial or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.74%
Values	Daily Returns

Sierra Bancorp  vs.  First Business Financial

Sierra Bancorp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Sierra Bancorp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

First Business Financial

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, First Business may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sierra Bancorp and First Business

The main advantage of trading using opposite Sierra Bancorp and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sierra Bancorp 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.

The idea behind Sierra Bancorp and First Business Financial 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.