Correlation Between Alerus Financial and First Capital

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

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

Diversification Opportunities for Alerus Financial and First Capital

-0.3

Correlation Coefficient

Alerus Financial  First Capital

Very good diversification

The 3 months correlation between Alerus and First is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Alerus Financial Corp and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital and Alerus 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 Alerus Financial Corp are associated (or correlated) with First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital has no effect on the direction of Alerus Financial i.e., Alerus Financial and First Capital go up and down completely randomly.

Pair Corralation between Alerus Financial and First Capital

Given the investment horizon of 90 days Alerus Financial Corp is expected to under-perform the First Capital. But the stock apears to be less risky and, when comparing its historical volatility, Alerus Financial Corp is 1.16 times less risky than First Capital. The stock trades about -0.04 of its potential returns per unit of risk. The First Capital is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,129  in First Capital on December 21, 2024 and sell it today you would earn a total of  678.00  from holding First Capital or generate 21.67% return on investment over 90 days.

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

Alerus Financial Corp  vs.  First Capital

Alerus Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alerus Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alerus Financial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Capital

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alerus Financial and First Capital

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

The idea behind Alerus Financial Corp and First Capital 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.