Correlation Between NBT Bancorp and UMB Financial

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

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

Diversification Opportunities for NBT Bancorp and UMB Financial

0.81

Correlation Coefficient

NBT Bancorp  UMB Financial

Very poor diversification

The 3 months correlation between NBT and UMB is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NBT Bancorp and UMB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMB Financial 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 UMB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMB Financial has no effect on the direction of NBT Bancorp i.e., NBT Bancorp and UMB Financial go up and down completely randomly.

Pair Corralation between NBT Bancorp and UMB Financial

Given the investment horizon of 90 days NBT Bancorp is expected to under-perform the UMB Financial. But the stock apears to be less risky and, when comparing its historical volatility, NBT Bancorp is 1.08 times less risky than UMB Financial. The stock trades about -0.12 of its potential returns per unit of risk. The UMB Financial is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  11,551  in UMB Financial on December 26, 2024 and sell it today you would lose (1,165) from holding UMB Financial or give up 10.09% of portfolio value over 90 days.

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

NBT Bancorp  vs.  UMB Financial

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.

UMB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days UMB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with NBT Bancorp and UMB Financial

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

The idea behind NBT Bancorp and UMB 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.

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.