Correlation Between First Capital and Financial Institutions

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

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

Diversification Opportunities for First Capital and Financial Institutions

-0.16

Correlation Coefficient

First Capital  Financial Institutions

Good diversification

The 3 months correlation between First and Financial is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions 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 Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of First Capital i.e., First Capital and Financial Institutions go up and down completely randomly.

Pair Corralation between First Capital and Financial Institutions

Given the investment horizon of 90 days First Capital is expected to generate 0.96 times more return on investment than Financial Institutions. However, First Capital is 1.04 times less risky than Financial Institutions. It trades about 0.04 of its potential returns per unit of risk. Financial Institutions is currently generating about 0.03 per unit of risk. If you would invest  2,476  in First Capital on August 31, 2024 and sell it today you would earn a total of  836.00  from holding First Capital or generate 33.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.53%
Values	Daily Returns

First Capital  vs.  Financial Institutions

First Capital

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Financial Institutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Institutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Financial Institutions may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with First Capital and Financial Institutions

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

The idea behind First Capital and Financial Institutions 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .