Correlation Between First Capital and Enterprise Financial

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

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

Diversification Opportunities for First Capital and Enterprise Financial

-0.18

Correlation Coefficient

First Capital  Enterprise Financial

Good diversification

The 3 months correlation between First and Enterprise is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Enterprise Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Financial 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 Enterprise Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Financial has no effect on the direction of First Capital i.e., First Capital and Enterprise Financial go up and down completely randomly.

Pair Corralation between First Capital and Enterprise Financial

Given the investment horizon of 90 days First Capital is expected to generate 1.01 times more return on investment than Enterprise Financial. However, First Capital is 1.01 times more volatile than Enterprise Financial Services. It trades about 0.19 of its potential returns per unit of risk. Enterprise Financial Services is currently generating about -0.03 per unit of risk. If you would invest  3,176  in First Capital on December 30, 2024 and sell it today you would earn a total of  644.00  from holding First Capital or generate 20.28% 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.  Enterprise Financial Services

First Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 14 (%) 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.

Enterprise Financial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Capital and Enterprise Financial

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

The idea behind First Capital and Enterprise Financial Services 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.