Correlation Between First Interstate and FVCBankcorp

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

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

Diversification Opportunities for First Interstate and FVCBankcorp

0.48

Correlation Coefficient

First Interstate  FVCBankcorp

Very weak diversification

The 3 months correlation between First and FVCBankcorp is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and FVCBankcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FVCBankcorp and First Interstate 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 First Interstate BancSystem are associated (or correlated) with FVCBankcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FVCBankcorp has no effect on the direction of First Interstate i.e., First Interstate and FVCBankcorp go up and down completely randomly.

Pair Corralation between First Interstate and FVCBankcorp

Given the investment horizon of 90 days First Interstate BancSystem is expected to generate 0.88 times more return on investment than FVCBankcorp. However, First Interstate BancSystem is 1.14 times less risky than FVCBankcorp. It trades about -0.01 of its potential returns per unit of risk. FVCBankcorp is currently generating about -0.02 per unit of risk. If you would invest  3,423  in First Interstate BancSystem on March 21, 2024 and sell it today you would lose (830.00) from holding First Interstate BancSystem or give up 24.25% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  FVCBankcorp

First Interstate Ban

Risk-Adjusted Performance

0 of 100

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 quite persistent fundamental drivers, First Interstate is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

FVCBankcorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FVCBankcorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First Interstate and FVCBankcorp

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

The idea behind First Interstate BancSystem and FVCBankcorp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.