Correlation Between Bancfirst Corp and BSE

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Can any of the company-specific risk be diversified away by investing in both Bancfirst Corp and BSE 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 Bancfirst Corp and BSE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bancfirst Corp and BSE, you can compare the effects of market volatilities on Bancfirst Corp and BSE 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 Bancfirst Corp with a short position of BSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bancfirst Corp and BSE.

Diversification Opportunities for Bancfirst Corp and BSE

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bancfirst and BSE is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bancfirst Corp and BSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BSE and Bancfirst Corp 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 Bancfirst Corp are associated (or correlated) with BSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BSE has no effect on the direction of Bancfirst Corp i.e., Bancfirst Corp and BSE go up and down completely randomly.
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Pair Corralation between Bancfirst Corp and BSE

Given the investment horizon of 90 days Bancfirst Corp is expected to generate 1.57 times more return on investment than BSE. However, Bancfirst Corp is 1.57 times more volatile than BSE. It trades about 0.12 of its potential returns per unit of risk. BSE is currently generating about 0.01 per unit of risk. If you would invest  5,656  in Bancfirst Corp on June 27, 2022 and sell it today you would earn a total of  3,695  from holding Bancfirst Corp or generate 65.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy96.67%
ValuesDaily Returns

Bancfirst Corp  vs.  BSE

 Performance (%) 
       Timeline  

Bancfirst Corp and BSE Volatility Contrast

   Predicted Return Density   
       Returns  

Bancfirst Corp

Pair trading matchups for Bancfirst Corp

BSE

Pair trading matchups for BSE

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BSE as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BSE's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BSE's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BSE.

Pair Trading with Bancfirst Corp and BSE

The main advantage of trading using opposite Bancfirst Corp and BSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bancfirst Corp position performs unexpectedly, BSE 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 BSE will offset losses from the drop in BSE's long position.
Bancfirst Corp vs. Sigma Lithium Corp
The idea behind Bancfirst Corp and BSE 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against BSE as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. BSE's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, BSE's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to BSE.
Check out your portfolio center. 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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