Correlation Between Independent Bank and First Bancorp

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

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

Diversification Opportunities for Independent Bank and First Bancorp

0.93

Correlation Coefficient

Independent Bank  First Bancorp

Almost no diversification

The 3 months correlation between Independent and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Independent Bank 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 Independent Bank are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Independent Bank i.e., Independent Bank and First Bancorp go up and down completely randomly.

Pair Corralation between Independent Bank and First Bancorp

Given the investment horizon of 90 days Independent Bank is expected to under-perform the First Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Independent Bank is 1.02 times less risky than First Bancorp. The stock trades about -0.1 of its potential returns per unit of risk. The First Bancorp is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  4,402  in First Bancorp on December 30, 2024 and sell it today you would lose (369.00) from holding First Bancorp or give up 8.38% of portfolio value over 90 days.

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

Independent Bank  vs.  First Bancorp

Independent Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Independent Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

First Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Independent Bank and First Bancorp

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

The idea behind Independent Bank and First Bancorp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.