Correlation Between First Interstate and MT Bank

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

Diversification Opportunities for First Interstate and MT Bank

0.81

Correlation Coefficient

First Interstate  MT Bank

Very poor diversification

The 3 months correlation between First and MTB is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and MT Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MT Bank 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 MT Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MT Bank has no effect on the direction of First Interstate i.e., First Interstate and MT Bank go up and down completely randomly.

Pair Corralation between First Interstate and MT Bank

Given the investment horizon of 90 days First Interstate is expected to generate 1.65 times less return on investment than MT Bank. In addition to that, First Interstate is 1.23 times more volatile than MT Bank. It trades about 0.04 of its total potential returns per unit of risk. MT Bank is currently generating about 0.09 per unit of volatility. If you would invest  12,917  in MT Bank on October 5, 2024 and sell it today you would earn a total of  5,955  from holding MT Bank or generate 46.1% return on investment over 90 days.

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

First Interstate BancSystem  vs.  MT Bank

First Interstate Ban

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 5 (%) 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 February 2025.

MT Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MT Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, MT Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Interstate and MT Bank

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

The idea behind First Interstate BancSystem and MT Bank 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 CEOs Directory module to screen CEOs from public companies around the world.