Correlation Between Great Southern and Business First

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

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

Diversification Opportunities for Great Southern and Business First

0.68

Correlation Coefficient

Great Southern  Business First

Poor diversification

The 3 months correlation between Great and Business is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Great Southern Bancorp and Business First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business First Bancshares and Great Southern 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 Great Southern Bancorp are associated (or correlated) with Business First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business First Bancshares has no effect on the direction of Great Southern i.e., Great Southern and Business First go up and down completely randomly.

Pair Corralation between Great Southern and Business First

Given the investment horizon of 90 days Great Southern Bancorp is expected to under-perform the Business First. But the stock apears to be less risky and, when comparing its historical volatility, Great Southern Bancorp is 1.24 times less risky than Business First. The stock trades about -0.07 of its potential returns per unit of risk. The Business First Bancshares is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,845  in Business First Bancshares on December 1, 2024 and sell it today you would lose (192.00) from holding Business First Bancshares or give up 6.75% of portfolio value over 90 days.

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

Great Southern Bancorp  vs.  Business First Bancshares

Great Southern Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Great Southern Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Business First 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 Great Southern and Business First

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

The idea behind Great Southern Bancorp and Business First Bancshares 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.