Correlation Between Tectonic Financial and First Business

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

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

Diversification Opportunities for Tectonic Financial and First Business

0.67

Correlation Coefficient

Tectonic Financial  First Business

Poor diversification

The 3 months correlation between Tectonic and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Tectonic Financial PR and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial and Tectonic Financial 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 Tectonic Financial PR are associated (or correlated) with First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Tectonic Financial i.e., Tectonic Financial and First Business go up and down completely randomly.

Pair Corralation between Tectonic Financial and First Business

Assuming the 90 days horizon Tectonic Financial is expected to generate 5.19 times less return on investment than First Business. But when comparing it to its historical volatility, Tectonic Financial PR is 3.32 times less risky than First Business. It trades about 0.06 of its potential returns per unit of risk. First Business Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4,402  in First Business Financial on August 31, 2024 and sell it today you would earn a total of  649.00  from holding First Business Financial or generate 14.74% return on investment over 90 days.

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

Tectonic Financial PR  vs.  First Business Financial

Tectonic Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tectonic Financial PR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Tectonic Financial is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

First Business Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting forward indicators, First Business showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tectonic Financial and First Business

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

The idea behind Tectonic Financial PR and First Business 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.