Correlation Between Equity Bancshares, and First Community

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

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

Diversification Opportunities for Equity Bancshares, and First Community

0.89

Correlation Coefficient

Equity Bancshares,  First Community

Very poor diversification

The 3 months correlation between Equity and First is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Equity Bancshares, and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Equity Bancshares, 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 Equity Bancshares, 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 has no effect on the direction of Equity Bancshares, i.e., Equity Bancshares, and First Community go up and down completely randomly.

Pair Corralation between Equity Bancshares, and First Community

Given the investment horizon of 90 days Equity Bancshares, is expected to under-perform the First Community. But the stock apears to be less risky and, when comparing its historical volatility, Equity Bancshares, is 1.16 times less risky than First Community. The stock trades about -0.06 of its potential returns per unit of risk. The First Community is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,379  in First Community on December 28, 2024 and sell it today you would lose (143.00) from holding First Community or give up 6.01% of portfolio value over 90 days.

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

Equity Bancshares,  vs.  First Community

Equity Bancshares,

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Bancshares, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

First Community

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Equity Bancshares, and First Community

The main advantage of trading using opposite Equity Bancshares, and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Bancshares, 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 Equity Bancshares, and First Community 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.