Correlation Between First Capital and First Community

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

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

Diversification Opportunities for First Capital and First Community

-0.35

Correlation Coefficient

First Capital  First Community

Very good diversification

The 3 months correlation between First and First is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community 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 First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of First Capital i.e., First Capital and First Community go up and down completely randomly.

Pair Corralation between First Capital and First Community

Given the investment horizon of 90 days First Capital is expected to generate 0.9 times more return on investment than First Community. However, First Capital is 1.11 times less risky than First Community. It trades about 0.19 of its potential returns per unit of risk. First Community is currently generating about -0.03 per unit of risk. If you would invest  3,176  in First Capital on December 28, 2024 and sell it today you would earn a total of  634.00  from holding First Capital or generate 19.96% 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.  First Community

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.

First Community

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Capital and First Community

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

The idea behind First Capital and First Community 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.