Correlation Between Northern Trust and First Citizens

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

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

Diversification Opportunities for Northern Trust and First Citizens

0.77

Correlation Coefficient

Northern Trust  First Citizens

Poor diversification

The 3 months correlation between Northern and First is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares and Northern Trust 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 Northern Trust are associated (or correlated) with First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of Northern Trust i.e., Northern Trust and First Citizens go up and down completely randomly.

Pair Corralation between Northern Trust and First Citizens

Assuming the 90 days horizon Northern Trust is expected to generate 46.95 times less return on investment than First Citizens. But when comparing it to its historical volatility, Northern Trust is 1.08 times less risky than First Citizens. It trades about 0.0 of its potential returns per unit of risk. First Citizens BancShares is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,224  in First Citizens BancShares on August 31, 2024 and sell it today you would earn a total of  127.00  from holding First Citizens BancShares or generate 5.71% return on investment over 90 days.

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

Northern Trust  vs.  First Citizens BancShares

Northern Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Northern Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Citizens BancShares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Northern Trust and First Citizens

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

The idea behind Northern Trust and First Citizens 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.