Correlation Between First Business and Pinnacle Financial

Can any of the company-specific risk be diversified away by investing in both First Business and Pinnacle Financial 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 Pinnacle Financial 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 Pinnacle Financial Partners, you can compare the effects of market volatilities on First Business and Pinnacle Financial 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 Pinnacle Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Pinnacle Financial.

Diversification Opportunities for First Business and Pinnacle Financial

0.95

Correlation Coefficient

First Business  Pinnacle Financial

Almost no diversification

The 3 months correlation between First and Pinnacle is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Pinnacle Financial Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle Financial 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 Pinnacle Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle Financial has no effect on the direction of First Business i.e., First Business and Pinnacle Financial go up and down completely randomly.

Pair Corralation between First Business and Pinnacle Financial

Given the investment horizon of 90 days First Business is expected to generate 1.9 times less return on investment than Pinnacle Financial. But when comparing it to its historical volatility, First Business Financial is 1.08 times less risky than Pinnacle Financial. It trades about 0.09 of its potential returns per unit of risk. Pinnacle Financial Partners is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  9,797  in Pinnacle Financial Partners on September 3, 2024 and sell it today you would earn a total of  2,914  from holding Pinnacle Financial Partners or generate 29.74% return on investment over 90 days.

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

First Business Financial  vs.  Pinnacle Financial Partners

First Business Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, First Business showed solid returns over the last few months and may actually be approaching a breakup point.

Pinnacle Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle Financial Partners are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Pinnacle Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Business and Pinnacle Financial

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

The idea behind First Business Financial and Pinnacle Financial Partners 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.