Correlation Between Sierra Bancorp and International Bancshares

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

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

Diversification Opportunities for Sierra Bancorp and International Bancshares

0.88

Correlation Coefficient

Sierra Bancorp  International Bancshares

Very poor diversification

The 3 months correlation between Sierra and International is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Bancorp and International Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Bancshares and Sierra 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 Sierra Bancorp are associated (or correlated) with International Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Bancshares has no effect on the direction of Sierra Bancorp i.e., Sierra Bancorp and International Bancshares go up and down completely randomly.

Pair Corralation between Sierra Bancorp and International Bancshares

Given the investment horizon of 90 days Sierra Bancorp is expected to generate 1.96 times less return on investment than International Bancshares. In addition to that, Sierra Bancorp is 1.25 times more volatile than International Bancshares. It trades about 0.04 of its total potential returns per unit of risk. International Bancshares is currently generating about 0.1 per unit of volatility. If you would invest  6,305  in International Bancshares on September 3, 2024 and sell it today you would earn a total of  1,008  from holding International Bancshares or generate 15.99% return on investment over 90 days.

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

Sierra Bancorp  vs.  International Bancshares

Sierra Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sierra Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

International Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, International Bancshares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sierra Bancorp and International Bancshares

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

The idea behind Sierra Bancorp and International 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.