Correlation Between Brighthouse Financial and First Citizens

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

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

Diversification Opportunities for Brighthouse Financial and First Citizens

0.72

Correlation Coefficient

Brighthouse Financial  First Citizens

Poor diversification

The 3 months correlation between Brighthouse and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Brighthouse Financial and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares and Brighthouse 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 Brighthouse Financial are associated (or correlated) with First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of Brighthouse Financial i.e., Brighthouse Financial and First Citizens go up and down completely randomly.

Pair Corralation between Brighthouse Financial and First Citizens

Assuming the 90 days horizon Brighthouse Financial is expected to generate 17.39 times less return on investment than First Citizens. But when comparing it to its historical volatility, Brighthouse Financial is 1.18 times less risky than First Citizens. It trades about 0.01 of its potential returns per unit of risk. First Citizens BancShares is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,224  in First Citizens BancShares on August 31, 2024 and sell it today you would earn a total of  127.00  from holding First Citizens BancShares or generate 5.71% return on investment over 90 days.

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

Brighthouse Financial  vs.  First Citizens BancShares

Brighthouse Financial

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Brighthouse Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Brighthouse Financial is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

First Citizens BancShares

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Brighthouse Financial and First Citizens

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

The idea behind Brighthouse Financial and First Citizens BancShares 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.