Correlation Between First National and Exchange Bank

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

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

Diversification Opportunities for First National and Exchange Bank

0.66

Correlation Coefficient

First National  Exchange Bank

Poor diversification

The 3 months correlation between First and Exchange is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding First National Bank and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bank and First National 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 First National Bank are associated (or correlated) with Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of First National i.e., First National and Exchange Bank go up and down completely randomly.

Pair Corralation between First National and Exchange Bank

Given the investment horizon of 90 days First National is expected to generate 1.67 times less return on investment than Exchange Bank. But when comparing it to its historical volatility, First National Bank is 1.01 times less risky than Exchange Bank. It trades about 0.05 of its potential returns per unit of risk. Exchange Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,381  in Exchange Bank on July 3, 2025 and sell it today you would earn a total of  1,019  from holding Exchange Bank or generate 9.82% return on investment over 90 days.

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

First National Bank  vs.  Exchange Bank

First National Bank

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in First National Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, First National may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Exchange Bank

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Exchange Bank may actually be approaching a critical reversion point that can send shares even higher in November 2025.

Pair Trading with First National and Exchange Bank

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

The idea behind First National Bank and Exchange 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.

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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.