Correlation Between UMB Financial and First Financial

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

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

Diversification Opportunities for UMB Financial and First Financial

0.95

Correlation Coefficient

UMB Financial  First Financial

Almost no diversification

The 3 months correlation between UMB and First is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding UMB Financial and First Financial Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bank and UMB 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 UMB Financial are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Bank has no effect on the direction of UMB Financial i.e., UMB Financial and First Financial go up and down completely randomly.

Pair Corralation between UMB Financial and First Financial

Given the investment horizon of 90 days UMB Financial is expected to generate 0.97 times more return on investment than First Financial. However, UMB Financial is 1.03 times less risky than First Financial. It trades about 0.17 of its potential returns per unit of risk. First Financial Bankshares is currently generating about 0.13 per unit of risk. If you would invest  7,904  in UMB Financial on September 19, 2024 and sell it today you would earn a total of  4,122  from holding UMB Financial or generate 52.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.21%
Values	Daily Returns

UMB Financial  vs.  First Financial Bankshares

UMB Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in UMB Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, UMB Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Financial Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bankshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, First Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with UMB Financial and First Financial

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

The idea behind UMB Financial and First Financial Bankshares 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.