Correlation Between First Capital and Bank of Marin

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

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

Diversification Opportunities for First Capital and Bank of Marin

-0.12

Correlation Coefficient

First Capital  Bank of Marin

Good diversification

The 3 months correlation between First and Bank is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Bank of Marin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Marin and First 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 First Capital are associated (or correlated) with Bank of Marin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Marin has no effect on the direction of First Capital i.e., First Capital and Bank of Marin go up and down completely randomly.

Pair Corralation between First Capital and Bank of Marin

Given the investment horizon of 90 days First Capital is expected to generate 0.96 times more return on investment than Bank of Marin. However, First Capital is 1.04 times less risky than Bank of Marin. It trades about 0.16 of its potential returns per unit of risk. Bank of Marin is currently generating about -0.05 per unit of risk. If you would invest  3,224  in First Capital on December 26, 2024 and sell it today you would earn a total of  563.00  from holding First Capital or generate 17.46% return on investment over 90 days.

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

First Capital  vs.  Bank of Marin

First Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Bank of Marin

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of Marin has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Bank of Marin is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Capital and Bank of Marin

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

The idea behind First Capital and Bank of Marin 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 Stocks Directory module to find actively traded stocks across global markets.