Correlation Between First Capital and Eagle Bancorp

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

By analyzing existing cross correlation between First Capital and Eagle Bancorp Montana, you can compare the effects of market volatilities on First Capital and Eagle Bancorp 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 Eagle Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Capital and Eagle Bancorp.

Diversification Opportunities for First Capital and Eagle Bancorp

0.3

Correlation Coefficient

First Capital  Eagle Bancorp

Weak diversification

The 3 months correlation between First and Eagle is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Eagle Bancorp Montana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Bancorp Montana 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 Eagle Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Bancorp Montana has no effect on the direction of First Capital i.e., First Capital and Eagle Bancorp go up and down completely randomly.

Pair Corralation between First Capital and Eagle Bancorp

Given the investment horizon of 90 days First Capital is expected to generate 1.04 times more return on investment than Eagle Bancorp. However, First Capital is 1.04 times more volatile than Eagle Bancorp Montana. It trades about 0.08 of its potential returns per unit of risk. Eagle Bancorp Montana is currently generating about 0.04 per unit of risk. If you would invest  3,281  in First Capital on November 29, 2024 and sell it today you would earn a total of  276.00  from holding First Capital or generate 8.41% return on investment over 90 days.

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

First Capital  vs.  Eagle Bancorp Montana

First Capital

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Eagle Bancorp Montana

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, Eagle Bancorp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with First Capital and Eagle Bancorp

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

The idea behind First Capital and Eagle Bancorp Montana 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.