Correlation Between Banco Do and First Community

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

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

Diversification Opportunities for Banco Do and First Community

0.84

Correlation Coefficient

Banco Do  First Community

Very poor diversification

The 3 months correlation between Banco and First is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and First Community Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Financial and Banco Do 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 Banco do Brasil are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Financial has no effect on the direction of Banco Do i.e., Banco Do and First Community go up and down completely randomly.

Pair Corralation between Banco Do and First Community

Assuming the 90 days trading horizon Banco do Brasil is expected to generate 0.41 times more return on investment than First Community. However, Banco do Brasil is 2.47 times less risky than First Community. It trades about -0.17 of its potential returns per unit of risk. First Community Financial is currently generating about -0.15 per unit of risk. If you would invest  2,770  in Banco do Brasil on September 2, 2024 and sell it today you would lose (293.00) from holding Banco do Brasil or give up 10.58% of portfolio value over 90 days.

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

Banco do Brasil  vs.  First Community Financial

Banco do Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

First Community Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental 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 Banco Do and First Community

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

The idea behind Banco do Brasil and First Community 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..