Correlation Between First Capital and International Bancshares

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

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

Diversification Opportunities for First Capital and International Bancshares

-0.31

Correlation Coefficient

First Capital  International Bancshares

Very good diversification

The 3 months correlation between First and International is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and International Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Bancshares 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 International Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Bancshares has no effect on the direction of First Capital i.e., First Capital and International Bancshares go up and down completely randomly.

Pair Corralation between First Capital and International Bancshares

Given the investment horizon of 90 days First Capital is expected to under-perform the International Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, First Capital is 1.62 times less risky than International Bancshares. The stock trades about -0.19 of its potential returns per unit of risk. The International Bancshares is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,164  in International Bancshares on September 5, 2024 and sell it today you would earn a total of  1,043  from holding International Bancshares or generate 16.92% 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.  International Bancshares

First Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 2 (%) 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 latest stock price agitation, may contribute to short-term losses for the retail investors.

International Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in International Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, International Bancshares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and International Bancshares

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

The idea behind First Capital and International Bancshares 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.