Correlation Between First Bancorp and BankFinancial

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

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

Diversification Opportunities for First Bancorp and BankFinancial

0.04

Correlation Coefficient

First Bancorp  BankFinancial

Significant diversification

The 3 months correlation between First and BankFinancial is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and BankFinancial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFinancial 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 BankFinancial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFinancial has no effect on the direction of First Bancorp i.e., First Bancorp and BankFinancial go up and down completely randomly.

Pair Corralation between First Bancorp and BankFinancial

Given the investment horizon of 90 days First Bancorp is expected to under-perform the BankFinancial. But the stock apears to be less risky and, when comparing its historical volatility, First Bancorp is 1.03 times less risky than BankFinancial. The stock trades about -0.08 of its potential returns per unit of risk. The BankFinancial is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,236  in BankFinancial on December 30, 2024 and sell it today you would earn a total of  46.00  from holding BankFinancial or generate 3.72% return on investment over 90 days.

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

First Bancorp  vs.  BankFinancial

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 latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BankFinancial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BankFinancial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, BankFinancial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Bancorp and BankFinancial

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

The idea behind First Bancorp and BankFinancial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.