Correlation Between KeyCorp and First Bancshares

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

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

Diversification Opportunities for KeyCorp and First Bancshares

-0.3

Correlation Coefficient

KeyCorp  First Bancshares

Very good diversification

The 3 months correlation between KeyCorp and First is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding KeyCorp and First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancshares and KeyCorp 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 KeyCorp are associated (or correlated) with First Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancshares has no effect on the direction of KeyCorp i.e., KeyCorp and First Bancshares go up and down completely randomly.

Pair Corralation between KeyCorp and First Bancshares

Assuming the 90 days trading horizon KeyCorp is expected to under-perform the First Bancshares. But the preferred stock apears to be less risky and, when comparing its historical volatility, KeyCorp is 2.63 times less risky than First Bancshares. The preferred stock trades about -0.03 of its potential returns per unit of risk. The First Bancshares is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,130  in First Bancshares on October 27, 2024 and sell it today you would earn a total of  120.00  from holding First Bancshares or generate 10.62% return on investment over 90 days.

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

KeyCorp  vs.  First Bancshares

KeyCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KeyCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, KeyCorp is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

First Bancshares

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, First Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KeyCorp and First Bancshares

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

The idea behind KeyCorp and 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.