Correlation Between Shinhan Financial and First Bancorp

Can any of the company-specific risk be diversified away by investing in both Shinhan 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 Shinhan 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 Shinhan Financial Group and First Bancorp, you can compare the effects of market volatilities on Shinhan 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 Shinhan Financial with a short position of First Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shinhan Financial and First Bancorp.

Diversification Opportunities for Shinhan Financial and First Bancorp

0.19

Correlation Coefficient

Shinhan Financial  First Bancorp

Average diversification

The 3 months correlation between Shinhan and First is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Shinhan 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 Shinhan Financial Group 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 Shinhan Financial i.e., Shinhan Financial and First Bancorp go up and down completely randomly.

Pair Corralation between Shinhan Financial and First Bancorp

Considering the 90-day investment horizon Shinhan Financial is expected to generate 1.58 times less return on investment than First Bancorp. But when comparing it to its historical volatility, Shinhan Financial Group is 1.03 times less risky than First Bancorp. It trades about 0.04 of its potential returns per unit of risk. First Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,231  in First Bancorp on August 31, 2024 and sell it today you would earn a total of  880.00  from holding First Bancorp or generate 71.49% return on investment over 90 days.

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

Shinhan Financial Group  vs.  First Bancorp

Shinhan Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Shinhan Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

First Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, First Bancorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Shinhan Financial and First Bancorp

The main advantage of trading using opposite Shinhan Financial and First Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shinhan 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 Shinhan Financial Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.