Correlation Between First Ottawa and FNB

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

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

Diversification Opportunities for First Ottawa and FNB

-0.26

Correlation Coefficient

First Ottawa  FNB

Very good diversification

The 3 months correlation between First and FNB is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding First Ottawa Bancshares and FNB Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNB Inc and First Ottawa 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 Ottawa Bancshares are associated (or correlated) with FNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNB Inc has no effect on the direction of First Ottawa i.e., First Ottawa and FNB go up and down completely randomly.

Pair Corralation between First Ottawa and FNB

Given the investment horizon of 90 days First Ottawa is expected to generate 1.18 times less return on investment than FNB. But when comparing it to its historical volatility, First Ottawa Bancshares is 3.26 times less risky than FNB. It trades about 0.07 of its potential returns per unit of risk. FNB Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,300  in FNB Inc on October 6, 2024 and sell it today you would earn a total of  45.00  from holding FNB Inc or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.94%
Values	Daily Returns

First Ottawa Bancshares  vs.  FNB Inc

First Ottawa Bancshares

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Ottawa Bancshares are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, First Ottawa sustained solid returns over the last few months and may actually be approaching a breakup point.

FNB Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FNB Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, FNB is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Ottawa and FNB

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

The idea behind First Ottawa Bancshares and FNB Inc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.