Correlation Between Investar Holding and Independent Bank

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

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

Diversification Opportunities for Investar Holding and Independent Bank

0.94

Correlation Coefficient

Investar Holding  Independent Bank

Almost no diversification

The 3 months correlation between Investar and Independent is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Investar Holding Corp and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Investar Holding 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 Investar Holding Corp are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Investar Holding i.e., Investar Holding and Independent Bank go up and down completely randomly.

Pair Corralation between Investar Holding and Independent Bank

Given the investment horizon of 90 days Investar Holding Corp is expected to generate 0.9 times more return on investment than Independent Bank. However, Investar Holding Corp is 1.11 times less risky than Independent Bank. It trades about 0.19 of its potential returns per unit of risk. Independent Bank is currently generating about 0.12 per unit of risk. If you would invest  1,834  in Investar Holding Corp on September 4, 2024 and sell it today you would earn a total of  548.00  from holding Investar Holding Corp or generate 29.88% return on investment over 90 days.

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

Investar Holding Corp  vs.  Independent Bank

Investar Holding Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Investar Holding Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Investar Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Independent Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Independent Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Investar Holding and Independent Bank

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

The idea behind Investar Holding Corp and Independent Bank 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.