Correlation Between ConnectOne Bancorp and First Guaranty

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

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

Diversification Opportunities for ConnectOne Bancorp and First Guaranty

0.67

Correlation Coefficient

ConnectOne Bancorp  First Guaranty

Poor diversification

The 3 months correlation between ConnectOne and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ConnectOne Bancorp and First Guaranty Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Guaranty Bancshares and ConnectOne 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 ConnectOne Bancorp are associated (or correlated) with First Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Guaranty Bancshares has no effect on the direction of ConnectOne Bancorp i.e., ConnectOne Bancorp and First Guaranty go up and down completely randomly.

Pair Corralation between ConnectOne Bancorp and First Guaranty

Assuming the 90 days horizon ConnectOne Bancorp is expected to generate 1.04 times more return on investment than First Guaranty. However, ConnectOne Bancorp is 1.04 times more volatile than First Guaranty Bancshares. It trades about 0.32 of its potential returns per unit of risk. First Guaranty Bancshares is currently generating about 0.06 per unit of risk. If you would invest  2,083  in ConnectOne Bancorp on September 5, 2024 and sell it today you would earn a total of  142.00  from holding ConnectOne Bancorp or generate 6.82% return on investment over 90 days.

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

ConnectOne Bancorp  vs.  First Guaranty Bancshares

ConnectOne Bancorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ConnectOne Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental drivers, ConnectOne Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Guaranty Bancshares

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Guaranty Bancshares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent forward indicators, First Guaranty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ConnectOne Bancorp and First Guaranty

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

The idea behind ConnectOne Bancorp and First Guaranty Bancshares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.