Correlation Between First Capital and MetroCity Bankshares

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

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

Diversification Opportunities for First Capital and MetroCity Bankshares

-0.64

Correlation Coefficient

First Capital  MetroCity Bankshares

Excellent diversification

The 3 months correlation between First and MetroCity is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and MetroCity Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetroCity Bankshares 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 MetroCity Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetroCity Bankshares has no effect on the direction of First Capital i.e., First Capital and MetroCity Bankshares go up and down completely randomly.

Pair Corralation between First Capital and MetroCity Bankshares

Given the investment horizon of 90 days First Capital is expected to under-perform the MetroCity Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, First Capital is 1.28 times less risky than MetroCity Bankshares. The stock trades about -0.06 of its potential returns per unit of risk. The MetroCity Bankshares is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,897  in MetroCity Bankshares on October 6, 2024 and sell it today you would earn a total of  290.00  from holding MetroCity Bankshares or generate 10.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

First Capital  vs.  MetroCity Bankshares

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

MetroCity Bankshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MetroCity Bankshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, MetroCity Bankshares may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Capital and MetroCity Bankshares

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

The idea behind First Capital and MetroCity Bankshares 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.