Correlation Between First Guaranty and CVB Financial

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

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

Diversification Opportunities for First Guaranty and CVB Financial

0.4

Correlation Coefficient

First Guaranty  CVB Financial

Very weak diversification

The 3 months correlation between First and CVB is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding First Guaranty Bancshares and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial and First Guaranty 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 Guaranty Bancshares are associated (or correlated) with CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of First Guaranty i.e., First Guaranty and CVB Financial go up and down completely randomly.

Pair Corralation between First Guaranty and CVB Financial

Assuming the 90 days horizon First Guaranty Bancshares is expected to generate 1.2 times more return on investment than CVB Financial. However, First Guaranty is 1.2 times more volatile than CVB Financial. It trades about -0.02 of its potential returns per unit of risk. CVB Financial is currently generating about -0.11 per unit of risk. If you would invest  1,992  in First Guaranty Bancshares on December 19, 2024 and sell it today you would lose (57.00) from holding First Guaranty Bancshares or give up 2.86% of portfolio value over 90 days.

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

First Guaranty Bancshares  vs.  CVB Financial

First Guaranty Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Guaranty Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, First Guaranty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

CVB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with First Guaranty and CVB Financial

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

The idea behind First Guaranty Bancshares and CVB Financial 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.