Correlation Between Community Bank and BankFirst Capital

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

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

Diversification Opportunities for Community Bank and BankFirst Capital

0.74

Correlation Coefficient

Community Bank  BankFirst Capital

Poor diversification

The 3 months correlation between Community and BankFirst is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Community Bank and BankFirst Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFirst Capital and Community 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 Community Bank are associated (or correlated) with BankFirst Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFirst Capital has no effect on the direction of Community Bank i.e., Community Bank and BankFirst Capital go up and down completely randomly.

Pair Corralation between Community Bank and BankFirst Capital

Assuming the 90 days horizon Community Bank is expected to generate 1.58 times more return on investment than BankFirst Capital. However, Community Bank is 1.58 times more volatile than BankFirst Capital. It trades about 0.04 of its potential returns per unit of risk. BankFirst Capital is currently generating about 0.01 per unit of risk. If you would invest  962.00  in Community Bank on October 11, 2024 and sell it today you would earn a total of  433.00  from holding Community Bank or generate 45.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.11%
Values	Daily Returns

Community Bank  vs.  BankFirst Capital

Community Bank

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Community Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak fundamental drivers, Community Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BankFirst Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BankFirst Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, BankFirst Capital may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Community Bank and BankFirst Capital

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

The idea behind Community Bank and BankFirst 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.