Correlation Between First Business and National Bank

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

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

Diversification Opportunities for First Business and National Bank

0.06

Correlation Coefficient

First Business  National Bank

Significant diversification

The 3 months correlation between First and National is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings and First Business 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 First Business Financial are associated (or correlated) with National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of First Business i.e., First Business and National Bank go up and down completely randomly.

Pair Corralation between First Business and National Bank

Given the investment horizon of 90 days First Business Financial is expected to generate 1.28 times more return on investment than National Bank. However, First Business is 1.28 times more volatile than National Bank Holdings. It trades about 0.07 of its potential returns per unit of risk. National Bank Holdings is currently generating about -0.11 per unit of risk. If you would invest  4,590  in First Business Financial on December 29, 2024 and sell it today you would earn a total of  296.00  from holding First Business Financial or generate 6.45% return on investment over 90 days.

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

First Business Financial  vs.  National Bank Holdings

First Business Financial

Risk-Adjusted Performance

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 April 2025.

National Bank Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with First Business and National Bank

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

The idea behind First Business Financial and National Bank Holdings 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.