Correlation Between First Interstate and UMB Financial

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

Diversification Opportunities for First Interstate and UMB Financial

0.84

Correlation Coefficient

First Interstate  UMB Financial

Very poor diversification

The 3 months correlation between First and UMB is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and UMB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMB 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 UMB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMB Financial has no effect on the direction of First Interstate i.e., First Interstate and UMB Financial go up and down completely randomly.

Pair Corralation between First Interstate and UMB Financial

Given the investment horizon of 90 days First Interstate BancSystem is expected to generate 1.03 times more return on investment than UMB Financial. However, First Interstate is 1.03 times more volatile than UMB Financial. It trades about -0.2 of its potential returns per unit of risk. UMB Financial is currently generating about -0.31 per unit of risk. If you would invest  3,276  in First Interstate BancSystem on November 29, 2024 and sell it today you would lose (242.00) from holding First Interstate BancSystem or give up 7.39% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  UMB Financial

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 unfluctuating performance in the last few months, the Stock's fundamental drivers remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

UMB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days UMB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First Interstate and UMB Financial

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

The idea behind First Interstate BancSystem and UMB 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.