Correlation Between Orrstown Financial and First Bancorp

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

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

Diversification Opportunities for Orrstown Financial and First Bancorp

0.88

Correlation Coefficient

Orrstown Financial  First Bancorp

Very poor diversification

The 3 months correlation between Orrstown and First is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Orrstown Financial Services and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Orrstown Financial 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 Orrstown Financial Services are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Orrstown Financial i.e., Orrstown Financial and First Bancorp go up and down completely randomly.

Pair Corralation between Orrstown Financial and First Bancorp

Given the investment horizon of 90 days Orrstown Financial is expected to generate 1.07 times less return on investment than First Bancorp. But when comparing it to its historical volatility, Orrstown Financial Services is 1.32 times less risky than First Bancorp. It trades about 0.11 of its potential returns per unit of risk. First Bancorp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,202  in First Bancorp on September 3, 2024 and sell it today you would earn a total of  528.00  from holding First Bancorp or generate 12.57% return on investment over 90 days.

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

Orrstown Financial Services  vs.  First Bancorp

Orrstown Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orrstown Financial Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Orrstown Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Bancorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, First Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orrstown Financial and First Bancorp

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

The idea behind Orrstown Financial Services and First Bancorp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.