Correlation Between First Interstate and Axos Financial

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

Diversification Opportunities for First Interstate and Axos Financial

0.95

Correlation Coefficient

First Interstate  Axos Financial

Almost no diversification

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

Pair Corralation between First Interstate and Axos Financial

Given the investment horizon of 90 days First Interstate is expected to generate 8.79 times less return on investment than Axos Financial. But when comparing it to its historical volatility, First Interstate BancSystem is 1.25 times less risky than Axos Financial. It trades about 0.01 of its potential returns per unit of risk. Axos Financial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,087  in Axos Financial on October 5, 2024 and sell it today you would earn a total of  2,795  from holding Axos Financial or generate 68.39% return on investment over 90 days.

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

First Interstate BancSystem  vs.  Axos Financial

First Interstate Ban

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 6 (%) 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.

Axos Financial

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Axos Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Axos Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Interstate and Axos Financial

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

The idea behind First Interstate BancSystem and Axos 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.