Correlation Between Independent Bank and Old National

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

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

Diversification Opportunities for Independent Bank and Old National

0.96

Correlation Coefficient

Independent Bank  Old National

Almost no diversification

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

Pair Corralation between Independent Bank and Old National

Given the investment horizon of 90 days Independent Bank is expected to generate 1.07 times more return on investment than Old National. However, Independent Bank is 1.07 times more volatile than Old National Bancorp. It trades about 0.11 of its potential returns per unit of risk. Old National Bancorp is currently generating about 0.07 per unit of risk. If you would invest  1,830  in Independent Bank on September 12, 2024 and sell it today you would earn a total of  1,950  from holding Independent Bank or generate 106.56% return on investment over 90 days.

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

Independent Bank  vs.  Old National Bancorp

Independent Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Independent Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Old National Bancorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Old National Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Old National sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Independent Bank and Old National

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

The idea behind Independent Bank and Old National 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.