Correlation Between First Advantage and Information Services

Can any of the company-specific risk be diversified away by investing in both First Advantage and Information Services 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 Information Services 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 Information Services Group, you can compare the effects of market volatilities on First Advantage and Information Services 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 Information Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Advantage and Information Services.

Diversification Opportunities for First Advantage and Information Services

0.31

Correlation Coefficient

First Advantage  Information Services

Weak diversification

The 3 months correlation between First and Information is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and Information Services Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Services 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 Information Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Services has no effect on the direction of First Advantage i.e., First Advantage and Information Services go up and down completely randomly.

Pair Corralation between First Advantage and Information Services

Allowing for the 90-day total investment horizon First Advantage Corp is expected to generate 0.76 times more return on investment than Information Services. However, First Advantage Corp is 1.32 times less risky than Information Services. It trades about -0.07 of its potential returns per unit of risk. Information Services Group is currently generating about -0.18 per unit of risk. If you would invest  1,928  in First Advantage Corp on September 28, 2024 and sell it today you would lose (37.00) from holding First Advantage Corp or give up 1.92% of portfolio value over 90 days.

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

First Advantage Corp  vs.  Information Services Group

First Advantage Corp

Risk-Adjusted Performance

0 of 100

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 current stock price disturbance, may contribute to short-term losses for the investors.

Information Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Information Services Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Information Services is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Advantage and Information Services

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

The idea behind First Advantage Corp and Information Services Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.