Correlation Between First Business and OFG Bancorp

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

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

Diversification Opportunities for First Business and OFG Bancorp

0.56

Correlation Coefficient

First Business  OFG Bancorp

Very weak diversification

The 3 months correlation between First and OFG is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and OFG Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OFG Bancorp and First Business 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 Business Financial are associated (or correlated) with OFG Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OFG Bancorp has no effect on the direction of First Business i.e., First Business and OFG Bancorp go up and down completely randomly.

Pair Corralation between First Business and OFG Bancorp

Given the investment horizon of 90 days First Business Financial is expected to generate 1.11 times more return on investment than OFG Bancorp. However, First Business is 1.11 times more volatile than OFG Bancorp. It trades about 0.14 of its potential returns per unit of risk. OFG Bancorp is currently generating about 0.08 per unit of risk. If you would invest  3,376  in First Business Financial on September 14, 2024 and sell it today you would earn a total of  1,535  from holding First Business Financial or generate 45.47% return on investment over 90 days.

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

First Business Financial  vs.  OFG Bancorp

First Business Financial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, First Business showed solid returns over the last few months and may actually be approaching a breakup point.

OFG Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OFG Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, OFG Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First Business and OFG Bancorp

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

The idea behind First Business Financial and OFG 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.