Correlation Between First Bancorp and Affinity Bancshares

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

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

Diversification Opportunities for First Bancorp and Affinity Bancshares

-0.05

Correlation Coefficient

First Bancorp  Affinity Bancshares

Good diversification

The 3 months correlation between First and Affinity is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares and First 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 First Bancorp are associated (or correlated) with Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of First Bancorp i.e., First Bancorp and Affinity Bancshares go up and down completely randomly.

Pair Corralation between First Bancorp and Affinity Bancshares

Given the investment horizon of 90 days First Bancorp is expected to generate 0.58 times more return on investment than Affinity Bancshares. However, First Bancorp is 1.73 times less risky than Affinity Bancshares. It trades about -0.06 of its potential returns per unit of risk. Affinity Bancshares is currently generating about -0.06 per unit of risk. If you would invest  4,402  in First Bancorp on December 29, 2024 and sell it today you would lose (273.00) from holding First Bancorp or give up 6.2% of portfolio value over 90 days.

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

First Bancorp  vs.  Affinity Bancshares

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 basic indicators, First Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Affinity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with First Bancorp and Affinity Bancshares

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

The idea behind First Bancorp and Affinity 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.