Correlation Between First Republic and UMB Financial

Can any of the company-specific risk be diversified away by investing in both First Republic 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 Republic 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 Republic Bank and UMB Financial, you can compare the effects of market volatilities on First Republic 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 Republic with a short position of UMB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Republic and UMB Financial.

Diversification Opportunities for First Republic and UMB Financial

-0.39

Correlation Coefficient

First Republic  UMB Financial

Very good diversification

The 3 months correlation between First and UMB is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding First Republic Bank and UMB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UMB Financial and First Republic 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 Republic Bank 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 Republic i.e., First Republic and UMB Financial go up and down completely randomly.

Pair Corralation between First Republic and UMB Financial

If you would invest  10,158  in UMB Financial on September 12, 2024 and sell it today you would earn a total of  2,339  from holding UMB Financial or generate 23.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

First Republic Bank  vs.  UMB Financial

First Republic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, First Republic is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

UMB Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UMB Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, UMB Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Republic and UMB Financial

The main advantage of trading using opposite First Republic and UMB Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Republic 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 Republic Bank 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.