Correlation Between Laurentian Bank and First Bancshares

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

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

Diversification Opportunities for Laurentian Bank and First Bancshares

-0.71

Correlation Coefficient

Laurentian Bank  First Bancshares

Pay attention - limited upside

The 3 months correlation between Laurentian and First is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Laurentian Bank of and First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancshares and Laurentian 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 Laurentian Bank of 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 Laurentian Bank i.e., Laurentian Bank and First Bancshares go up and down completely randomly.

Pair Corralation between Laurentian Bank and First Bancshares

Assuming the 90 days horizon Laurentian Bank of is expected to under-perform the First Bancshares. But the pink sheet apears to be less risky and, when comparing its historical volatility, Laurentian Bank of is 2.15 times less risky than First Bancshares. The pink sheet trades about -0.06 of its potential returns per unit of risk. The First Bancshares is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,368  in First Bancshares on December 20, 2024 and sell it today you would lose (8.00) from holding First Bancshares or give up 0.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.0%
Values	Daily Returns

Laurentian Bank of  vs.  First Bancshares

Laurentian Bank

Risk-Adjusted Performance

Very Weak

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

First Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Bancshares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Laurentian Bank and First Bancshares

The main advantage of trading using opposite Laurentian Bank and First Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Laurentian Bank 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 Laurentian Bank of 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.