Correlation Between Columbia Banking and First Bancorp

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

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

Diversification Opportunities for Columbia Banking and First Bancorp

0.34

Correlation Coefficient

Columbia Banking  First Bancorp

Weak diversification

The 3 months correlation between Columbia and First is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Columbia Banking System and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp and Columbia Banking 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 Columbia Banking System 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 Columbia Banking i.e., Columbia Banking and First Bancorp go up and down completely randomly.

Pair Corralation between Columbia Banking and First Bancorp

Given the investment horizon of 90 days Columbia Banking System is expected to generate 0.92 times more return on investment than First Bancorp. However, Columbia Banking System is 1.09 times less risky than First Bancorp. It trades about 0.07 of its potential returns per unit of risk. First Bancorp is currently generating about -0.04 per unit of risk. If you would invest  1,869  in Columbia Banking System on February 4, 2024 and sell it today you would earn a total of  148.00  from holding Columbia Banking System or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Columbia Banking System  vs.  First Bancorp

Columbia Banking System

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Columbia Banking System are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent essential indicators, Columbia Banking may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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. In spite of rather sound basic indicators, First Bancorp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Columbia Banking and First Bancorp

The main advantage of trading using opposite Columbia Banking and First Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Columbia Banking 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 Columbia Banking System 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.

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 the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.