Correlation Between Independent Bank and First State

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

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

Diversification Opportunities for Independent Bank and First State

0.69

Correlation Coefficient

Independent Bank  First State

Poor diversification

The 3 months correlation between Independent and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Independent Bank Group and First State Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First State Financial 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 Group are associated (or correlated) with First State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First State Financial has no effect on the direction of Independent Bank i.e., Independent Bank and First State go up and down completely randomly.

Pair Corralation between Independent Bank and First State

Given the investment horizon of 90 days Independent Bank is expected to generate 24.42 times less return on investment than First State. But when comparing it to its historical volatility, Independent Bank Group is 7.12 times less risky than First State. It trades about 0.03 of its potential returns per unit of risk. First State Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.51  in First State Financial on August 31, 2024 and sell it today you would earn a total of  2.96  from holding First State Financial or generate 196.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	28.24%
Values	Daily Returns

Independent Bank Group  vs.  First State Financial

Independent Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Independent Bank showed solid returns over the last few months and may actually be approaching a breakup point.

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First State Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First State is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Independent Bank and First State

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

The idea behind Independent Bank Group and First State Financial 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.