Correlation Between First Interstate and Auburn National

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

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

Diversification Opportunities for First Interstate and Auburn National

0.44

Correlation Coefficient

First Interstate  Auburn National

Very weak diversification

The 3 months correlation between First and Auburn is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Auburn National Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auburn National Banc and First Interstate 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 Interstate BancSystem are associated (or correlated) with Auburn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auburn National Banc has no effect on the direction of First Interstate i.e., First Interstate and Auburn National go up and down completely randomly.

Pair Corralation between First Interstate and Auburn National

Given the investment horizon of 90 days First Interstate is expected to generate 1.61 times less return on investment than Auburn National. But when comparing it to its historical volatility, First Interstate BancSystem is 1.04 times less risky than Auburn National. It trades about 0.12 of its potential returns per unit of risk. Auburn National Bancorporation is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,801  in Auburn National Bancorporation on August 31, 2024 and sell it today you would earn a total of  559.00  from holding Auburn National Bancorporation or generate 31.04% return on investment over 90 days.

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

First Interstate BancSystem  vs.  Auburn National Bancorp.

First Interstate Ban

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, First Interstate disclosed solid returns over the last few months and may actually be approaching a breakup point.

Auburn National Banc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Auburn National Bancorporation are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental drivers, Auburn National displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Interstate and Auburn National

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

The idea behind First Interstate BancSystem and Auburn National Bancorporation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.