Correlation Between First Interstate and Columbia Banking

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

Diversification Opportunities for First Interstate and Columbia Banking

0.9

Correlation Coefficient

First Interstate  Columbia Banking

Almost no diversification

The 3 months correlation between First and Columbia is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Columbia Banking System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Banking System 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 Columbia Banking. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Banking System has no effect on the direction of First Interstate i.e., First Interstate and Columbia Banking go up and down completely randomly.

Pair Corralation between First Interstate and Columbia Banking

Given the investment horizon of 90 days First Interstate is expected to generate 1.06 times less return on investment than Columbia Banking. But when comparing it to its historical volatility, First Interstate BancSystem is 1.21 times less risky than Columbia Banking. It trades about 0.01 of its potential returns per unit of risk. Columbia Banking System is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,908  in Columbia Banking System on September 29, 2024 and sell it today you would lose (194.00) from holding Columbia Banking System or give up 6.67% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  Columbia Banking System

First Interstate Ban

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, First Interstate may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Columbia Banking System

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Banking System are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent essential indicators, Columbia Banking may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Interstate and Columbia Banking

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

The idea behind First Interstate BancSystem and Columbia Banking System 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.