Correlation Between First Advantage and Deluxe

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Can any of the company-specific risk be diversified away by investing in both First Advantage and Deluxe 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 First Advantage and Deluxe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Advantage Corp and Deluxe, you can compare the effects of market volatilities on First Advantage and Deluxe 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 First Advantage with a short position of Deluxe. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Advantage and Deluxe.

Diversification Opportunities for First Advantage and Deluxe

FirstDeluxeDiversified AwayFirstDeluxeDiversified Away100%
-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between First and Deluxe is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and Deluxe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deluxe and First Advantage 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 First Advantage Corp are associated (or correlated) with Deluxe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deluxe has no effect on the direction of First Advantage i.e., First Advantage and Deluxe go up and down completely randomly.

Pair Corralation between First Advantage and Deluxe

Allowing for the 90-day total investment horizon First Advantage is expected to generate 62.37 times less return on investment than Deluxe. But when comparing it to its historical volatility, First Advantage Corp is 1.17 times less risky than Deluxe. It trades about 0.0 of its potential returns per unit of risk. Deluxe is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,948  in Deluxe on September 17, 2024 and sell it today you would earn a total of  384.00  from holding Deluxe or generate 19.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

First Advantage Corp  vs.  Deluxe

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-50510152025
JavaScript chart by amCharts 3.21.15FA DLX
       Timeline  
First Advantage Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec17.51818.51919.52020.5
Deluxe 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec192021222324

First Advantage and Deluxe Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-6.01-4.5-2.99-1.480.01.442.964.475.997.51 0.020.040.060.080.10
JavaScript chart by amCharts 3.21.15FA DLX
       Returns  

Pair Trading with First Advantage and Deluxe

The main advantage of trading using opposite First Advantage and Deluxe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Advantage position performs unexpectedly, Deluxe 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 Deluxe will offset losses from the drop in Deluxe's long position.
The idea behind First Advantage Corp and Deluxe 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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