Correlation Between Grupo Financiero and First Republic

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

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

Diversification Opportunities for Grupo Financiero and First Republic

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Correlation Coefficient

Grupo Financiero  First Republic

Pay attention - limited upside

The 3 months correlation between Grupo and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Financiero Banorte and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank and Grupo Financiero 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 Grupo Financiero Banorte are associated (or correlated) with First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of Grupo Financiero i.e., Grupo Financiero and First Republic go up and down completely randomly.

Pair Corralation between Grupo Financiero and First Republic

Assuming the 90 days trading horizon Grupo Financiero Banorte is expected to generate 0.33 times more return on investment than First Republic. However, Grupo Financiero Banorte is 3.05 times less risky than First Republic. It trades about 0.02 of its potential returns per unit of risk. First Republic Bank is currently generating about -0.08 per unit of risk. If you would invest  12,291  in Grupo Financiero Banorte on September 4, 2024 and sell it today you would earn a total of  1,434  from holding Grupo Financiero Banorte or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Grupo Financiero Banorte  vs.  First Republic Bank

Grupo Financiero Banorte

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Grupo Financiero Banorte has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Grupo Financiero is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of fairly strong fundamental indicators, First Republic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Grupo Financiero and First Republic

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

The idea behind Grupo Financiero Banorte and First Republic Bank 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.