Correlation Between CNB and First Capital

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

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

Diversification Opportunities for CNB and First Capital

0.87

Correlation Coefficient

CNB  First Capital

Very poor diversification

The 3 months correlation between CNB and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding CNB Corp. and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital and CNB 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 CNB Corporation 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 CNB i.e., CNB and First Capital go up and down completely randomly.

Pair Corralation between CNB and First Capital

Given the investment horizon of 90 days CNB Corporation is expected to generate 1.7 times more return on investment than First Capital. However, CNB is 1.7 times more volatile than First Capital. It trades about 0.03 of its potential returns per unit of risk. First Capital is currently generating about 0.03 per unit of risk. If you would invest  1,654  in CNB Corporation on October 4, 2024 and sell it today you would earn a total of  146.00  from holding CNB Corporation or generate 8.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	79.51%
Values	Daily Returns

CNB Corp.  vs.  First Capital

CNB Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, CNB is not utilizing all of its potentials. The recent 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 latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with CNB and First Capital

The main advantage of trading using opposite CNB and First Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNB 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 CNB Corporation 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.