Correlation Between First Interstate and Provident Financial

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

Diversification Opportunities for First Interstate and Provident Financial

0.93

Correlation Coefficient

First Interstate  Provident Financial

Almost no diversification

The 3 months correlation between First and Provident is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Provident Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident 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 Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of First Interstate i.e., First Interstate and Provident Financial go up and down completely randomly.

Pair Corralation between First Interstate and Provident Financial

Given the investment horizon of 90 days First Interstate BancSystem is expected to under-perform the Provident Financial. In addition to that, First Interstate is 1.02 times more volatile than Provident Financial Services. It trades about -0.08 of its total potential returns per unit of risk. Provident Financial Services is currently generating about -0.06 per unit of volatility. If you would invest  1,860  in Provident Financial Services on December 29, 2024 and sell it today you would lose (121.00) from holding Provident Financial Services or give up 6.51% 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.  Provident Financial Services

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.

Provident Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Provident Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Provident Financial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Interstate and Provident Financial

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

The idea behind First Interstate BancSystem and Provident Financial Services 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.