Correlation Between Bank First and Independent Bank

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

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

Diversification Opportunities for Bank First and Independent Bank

0.8

Correlation Coefficient

Bank First  Independent Bank

Very poor diversification

The 3 months correlation between Bank and Independent is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bank First National and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Bank First 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 Bank First National are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Bank First i.e., Bank First and Independent Bank go up and down completely randomly.

Pair Corralation between Bank First and Independent Bank

Considering the 90-day investment horizon Bank First National is expected to under-perform the Independent Bank. But the stock apears to be less risky and, when comparing its historical volatility, Bank First National is 1.06 times less risky than Independent Bank. The stock trades about -0.1 of its potential returns per unit of risk. The Independent Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,107  in Independent Bank on January 25, 2024 and sell it today you would earn a total of  115.00  from holding Independent Bank or generate 2.25% return on investment over 90 days.

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

Bank First National  vs.  Independent Bank

Bank First National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank First National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Independent Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Independent Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Bank First and Independent Bank

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

The idea behind Bank First National and Independent Bank 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.