Correlation Between First Capital and HTBI Old

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

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

Diversification Opportunities for First Capital and HTBI Old

0.13

Correlation Coefficient

First Capital  HTBI Old

Average diversification

The 3 months correlation between First and HTBI is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and HTBI Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HTBI Old 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 HTBI Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HTBI Old has no effect on the direction of First Capital i.e., First Capital and HTBI Old go up and down completely randomly.

Pair Corralation between First Capital and HTBI Old

Given the investment horizon of 90 days First Capital is expected to generate 1.01 times more return on investment than HTBI Old. However, First Capital is 1.01 times more volatile than HTBI Old. It trades about 0.19 of its potential returns per unit of risk. HTBI Old is currently generating about 0.14 per unit of risk. If you would invest  3,176  in First Capital on December 29, 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 Together
Strength	Insignificant
Accuracy	60.66%
Values	Daily Returns

First Capital  vs.  HTBI Old

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 weak basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

HTBI Old

Risk-Adjusted Performance

OK

Over the last 90 days HTBI Old has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly fragile fundamental drivers, HTBI Old demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and HTBI Old

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

The idea behind First Capital and HTBI Old 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.