Correlation Between US Bancorp and First Citizens

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

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

Diversification Opportunities for US Bancorp and First Citizens

0.74

Correlation Coefficient

US Bancorp  First Citizens

Poor diversification

The 3 months correlation between USB-PH and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares and US Bancorp 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 US Bancorp are associated (or correlated) with First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of US Bancorp i.e., US Bancorp and First Citizens go up and down completely randomly.

Pair Corralation between US Bancorp and First Citizens

Assuming the 90 days trading horizon US Bancorp is expected to generate 1.21 times less return on investment than First Citizens. But when comparing it to its historical volatility, US Bancorp is 1.57 times less risky than First Citizens. It trades about 0.12 of its potential returns per unit of risk. First Citizens BancShares is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,835  in First Citizens BancShares on January 19, 2024 and sell it today you would earn a total of  253.00  from holding First Citizens BancShares or generate 13.79% return on investment over 90 days.

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

US Bancorp  vs.  First Citizens BancShares

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

First Citizens BancShares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with US Bancorp and First Citizens

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

The idea behind US Bancorp and First Citizens BancShares 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .