Correlation Between International Bancshares and CF Financial

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

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

Diversification Opportunities for International Bancshares and CF Financial

0.91

Correlation Coefficient

International Bancshares  CF Financial

Almost no diversification

The 3 months correlation between International and CFFI is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding International Bancshares and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial and International Bancshares 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 International Bancshares are associated (or correlated) with CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of International Bancshares i.e., International Bancshares and CF Financial go up and down completely randomly.

Pair Corralation between International Bancshares and CF Financial

Given the investment horizon of 90 days International Bancshares is expected to generate 1.16 times less return on investment than CF Financial. But when comparing it to its historical volatility, International Bancshares is 1.04 times less risky than CF Financial. It trades about 0.21 of its potential returns per unit of risk. CF Financial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  6,299  in CF Financial on September 5, 2024 and sell it today you would earn a total of  1,257  from holding CF Financial or generate 19.96% return on investment over 90 days.

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

International Bancshares  vs.  CF Financial

International Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, International Bancshares exhibited solid returns over the last few months and may actually be approaching a breakup point.

CF Financial

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CF Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, CF Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Bancshares and CF Financial

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

The idea behind International Bancshares and CF 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 Global Correlations module to find global opportunities by holding instruments from different markets.