Correlation Between NBT Bancorp and Financial Institutions

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

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

Diversification Opportunities for NBT Bancorp and Financial Institutions

0.64

Correlation Coefficient

NBT Bancorp  Financial Institutions

Poor diversification

The 3 months correlation between NBT and Financial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NBT Bancorp and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions and NBT Bancorp 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 NBT Bancorp are associated (or correlated) with Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of NBT Bancorp i.e., NBT Bancorp and Financial Institutions go up and down completely randomly.

Pair Corralation between NBT Bancorp and Financial Institutions

Given the investment horizon of 90 days NBT Bancorp is expected to under-perform the Financial Institutions. But the stock apears to be less risky and, when comparing its historical volatility, NBT Bancorp is 1.01 times less risky than Financial Institutions. The stock trades about -0.09 of its potential returns per unit of risk. The Financial Institutions is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  2,670  in Financial Institutions on December 29, 2024 and sell it today you would lose (170.00) from holding Financial Institutions or give up 6.37% of portfolio value over 90 days.

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

NBT Bancorp  vs.  Financial Institutions

NBT Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days NBT Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Financial Institutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Institutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Financial Institutions is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NBT Bancorp and Financial Institutions

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

The idea behind NBT Bancorp and Financial Institutions 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.