Correlation Between First Republic and Banner

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

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

Diversification Opportunities for First Republic and Banner

-0.74

Correlation Coefficient

First Republic  Banner

Pay attention - limited upside

The 3 months correlation between First and Banner is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding First Republic Bank and Banner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banner and First Republic 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 Republic Bank are associated (or correlated) with Banner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banner has no effect on the direction of First Republic i.e., First Republic and Banner go up and down completely randomly.

Pair Corralation between First Republic and Banner

Assuming the 90 days horizon First Republic Bank is expected to under-perform the Banner. In addition to that, First Republic is 11.18 times more volatile than Banner. It trades about -0.04 of its total potential returns per unit of risk. Banner is currently generating about 0.03 per unit of volatility. If you would invest  5,794  in Banner on September 28, 2024 and sell it today you would earn a total of  1,020  from holding Banner or generate 17.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.26%
Values	Daily Returns

First Republic Bank  vs.  Banner

First Republic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, First Republic is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Banner

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banner are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Banner reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Republic and Banner

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

The idea behind First Republic Bank and Banner 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.