Correlation Between First Bancorp and UMB Financial

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

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

Diversification Opportunities for First Bancorp and UMB Financial

0.96

Correlation Coefficient

First Bancorp  UMB Financial

Almost no diversification

The 3 months correlation between First and UMB is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and UMB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMB Financial and First 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 First Bancorp are associated (or correlated) with UMB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UMB Financial has no effect on the direction of First Bancorp i.e., First Bancorp and UMB Financial go up and down completely randomly.

Pair Corralation between First Bancorp and UMB Financial

Given the investment horizon of 90 days First Bancorp is expected to generate 1.44 times less return on investment than UMB Financial. But when comparing it to its historical volatility, First Bancorp is 1.0 times less risky than UMB Financial. It trades about 0.06 of its potential returns per unit of risk. UMB Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  10,851  in UMB Financial on September 19, 2024 and sell it today you would earn a total of  1,175  from holding UMB Financial or generate 10.83% return on investment over 90 days.

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

First Bancorp  vs.  UMB Financial

First Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

UMB Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in UMB Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, UMB Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Bancorp and UMB Financial

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

The idea behind First Bancorp and UMB Financial 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.