Correlation Between Provident Financial and First Interstate

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

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

Diversification Opportunities for Provident Financial and First Interstate

0.93

Correlation Coefficient

Provident Financial  First Interstate

Almost no diversification

The 3 months correlation between Provident and First is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Provident Financial Services and First Interstate BancSystem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Interstate Ban and Provident 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 Provident Financial Services are associated (or correlated) with First Interstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Interstate Ban has no effect on the direction of Provident Financial i.e., Provident Financial and First Interstate go up and down completely randomly.

Pair Corralation between Provident Financial and First Interstate

Considering the 90-day investment horizon Provident Financial Services is expected to generate 0.98 times more return on investment than First Interstate. However, Provident Financial Services is 1.02 times less risky than First Interstate. It trades about -0.06 of its potential returns per unit of risk. First Interstate BancSystem is currently generating about -0.08 per unit of risk. If you would invest  1,860  in Provident Financial Services on December 29, 2024 and sell it today you would lose (121.00) from holding Provident Financial Services or give up 6.51% of portfolio value over 90 days.

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

Provident Financial Services  vs.  First Interstate BancSystem

Provident Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Provident Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Provident Financial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

First Interstate Ban

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Interstate BancSystem has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Provident Financial and First Interstate

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

The idea behind Provident Financial Services and First Interstate BancSystem 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.