Correlation Between First Interstate and Community Trust

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

Diversification Opportunities for First Interstate and Community Trust

0.66

Correlation Coefficient

First Interstate  Community Trust

Poor diversification

The 3 months correlation between First and Community is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Community Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Trust Bancorp 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 Community Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Trust Bancorp has no effect on the direction of First Interstate i.e., First Interstate and Community Trust go up and down completely randomly.

Pair Corralation between First Interstate and Community Trust

Given the investment horizon of 90 days First Interstate BancSystem is expected to under-perform the Community Trust. In addition to that, First Interstate is 1.14 times more volatile than Community Trust Bancorp. It trades about -0.1 of its total potential returns per unit of risk. Community Trust Bancorp is currently generating about -0.03 per unit of volatility. If you would invest  5,273  in Community Trust Bancorp on December 29, 2024 and sell it today you would lose (184.00) from holding Community Trust Bancorp or give up 3.49% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  Community Trust Bancorp

First Interstate Ban

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Interstate BancSystem has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Community Trust Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Trust Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Community Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Interstate and Community Trust

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

The idea behind First Interstate BancSystem and Community Trust Bancorp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.