Correlation Between Aozora Bank and First Capital

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

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

Diversification Opportunities for Aozora Bank and First Capital

0.5

Correlation Coefficient

Aozora Bank  First Capital

Very weak diversification

The 3 months correlation between Aozora and First is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Aozora Bank Ltd and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital and Aozora Bank 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 Aozora Bank Ltd 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 Aozora Bank i.e., Aozora Bank and First Capital go up and down completely randomly.

Pair Corralation between Aozora Bank and First Capital

Assuming the 90 days horizon Aozora Bank Ltd is expected to generate 0.49 times more return on investment than First Capital. However, Aozora Bank Ltd is 2.02 times less risky than First Capital. It trades about -0.04 of its potential returns per unit of risk. First Capital is currently generating about -0.16 per unit of risk. If you would invest  452.00  in Aozora Bank Ltd on September 20, 2024 and sell it today you would lose (13.00) from holding Aozora Bank Ltd or give up 2.88% of portfolio value over 90 days.

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

Aozora Bank Ltd  vs.  First Capital

Aozora Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aozora Bank Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Aozora Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Aozora Bank and First Capital

The main advantage of trading using opposite Aozora Bank and First Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aozora Bank 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 Aozora Bank Ltd 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.