Correlation Between First Bancorp and US Bancorp

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

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

Diversification Opportunities for First Bancorp and US Bancorp

0.34

Correlation Coefficient

First Bancorp  US Bancorp

Weak diversification

The 3 months correlation between First and USB-PA is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and US Bancorp PERP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp PERP 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp PERP has no effect on the direction of First Bancorp i.e., First Bancorp and US Bancorp go up and down completely randomly.

Pair Corralation between First Bancorp and US Bancorp

Given the investment horizon of 90 days First Bancorp is expected to generate 4.57 times more return on investment than US Bancorp. However, First Bancorp is 4.57 times more volatile than US Bancorp PERP. It trades about 0.07 of its potential returns per unit of risk. US Bancorp PERP is currently generating about 0.16 per unit of risk. If you would invest  2,637  in First Bancorp on September 4, 2024 and sell it today you would earn a total of  288.00  from holding First Bancorp or generate 10.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

First Bancorp  vs.  US Bancorp PERP

First Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

US Bancorp PERP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp PERP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Bancorp and US Bancorp

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

The idea behind First Bancorp and US Bancorp PERP 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.