Correlation Between First Mid and First Interstate

Can any of the company-specific risk be diversified away by investing in both First Mid and First Interstate 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 Mid and First Interstate into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Mid Illinois and First Interstate BancSystem, you can compare the effects of market volatilities on First Mid and First Interstate 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 Mid with a short position of First Interstate. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Mid and First Interstate.

Diversification Opportunities for First Mid and First Interstate

0.86

Correlation Coefficient

First Mid  First Interstate

Very poor diversification

The 3 months correlation between First and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Mid Illinois and First Interstate BancSystem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Interstate Ban and First Mid 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 Mid Illinois are associated (or correlated) with First Interstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Interstate Ban has no effect on the direction of First Mid i.e., First Mid and First Interstate go up and down completely randomly.

Pair Corralation between First Mid and First Interstate

Given the investment horizon of 90 days First Mid Illinois is expected to under-perform the First Interstate. But the stock apears to be less risky and, when comparing its historical volatility, First Mid Illinois is 1.19 times less risky than First Interstate. The stock trades about -0.47 of its potential returns per unit of risk. The First Interstate BancSystem is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  3,450  in First Interstate BancSystem on October 5, 2024 and sell it today you would lose (203.00) from holding First Interstate BancSystem or give up 5.88% of portfolio value over 90 days.

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

First Mid Illinois  vs.  First Interstate BancSystem

First Mid Illinois

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Interstate Ban

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, First Interstate disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Mid and First Interstate

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

The idea behind First Mid Illinois and First Interstate BancSystem 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.