Correlation Between Firm Capital and Timbercreek Financial

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

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

Diversification Opportunities for Firm Capital and Timbercreek Financial

0.05

Correlation Coefficient

Firm Capital  Timbercreek Financial

Significant diversification

The 3 months correlation between Firm and Timbercreek is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Firm Capital Mortgage and Timbercreek Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Timbercreek Financial and Firm Capital 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 Firm Capital Mortgage are associated (or correlated) with Timbercreek Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Timbercreek Financial has no effect on the direction of Firm Capital i.e., Firm Capital and Timbercreek Financial go up and down completely randomly.

Pair Corralation between Firm Capital and Timbercreek Financial

Assuming the 90 days horizon Firm Capital Mortgage is expected to generate 0.86 times more return on investment than Timbercreek Financial. However, Firm Capital Mortgage is 1.17 times less risky than Timbercreek Financial. It trades about 0.03 of its potential returns per unit of risk. Timbercreek Financial Corp is currently generating about -0.08 per unit of risk. If you would invest  1,179  in Firm Capital Mortgage on December 30, 2024 and sell it today you would earn a total of  15.00  from holding Firm Capital Mortgage or generate 1.27% return on investment over 90 days.

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

Firm Capital Mortgage  vs.  Timbercreek Financial Corp

Firm Capital Mortgage

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Firm Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Timbercreek Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Firm Capital and Timbercreek Financial

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

The idea behind Firm Capital Mortgage and Timbercreek Financial Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.