Correlation Between Deutsche Bank and First Community

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

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

Diversification Opportunities for Deutsche Bank and First Community

0.06

Correlation Coefficient

Deutsche Bank  First Community

Significant diversification

The 3 months correlation between Deutsche and First is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Bank AG 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 Deutsche 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 Deutsche Bank AG 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 Deutsche Bank i.e., Deutsche Bank and First Community go up and down completely randomly.

Pair Corralation between Deutsche Bank and First Community

Allowing for the 90-day total investment horizon Deutsche Bank AG is expected to generate 1.23 times more return on investment than First Community. However, Deutsche Bank is 1.23 times more volatile than First Community Financial. It trades about 0.13 of its potential returns per unit of risk. First Community Financial is currently generating about 0.02 per unit of risk. If you would invest  1,620  in Deutsche Bank AG on September 23, 2024 and sell it today you would earn a total of  73.00  from holding Deutsche Bank AG or generate 4.51% return on investment over 90 days.

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

Deutsche Bank AG  vs.  First Community Financial

Deutsche Bank AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Bank AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Deutsche Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 Deutsche Bank and First Community

The main advantage of trading using opposite Deutsche Bank and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Bank 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 Deutsche Bank AG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.