Correlation Between First Community and Air Lease

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

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

Diversification Opportunities for First Community and Air Lease

0.83

Correlation Coefficient

First Community  Air Lease

Very poor diversification

The 3 months correlation between First and Air is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding First Community Bancshares and Air Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Lease and First Community 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 Community Bancshares are associated (or correlated) with Air Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Lease has no effect on the direction of First Community i.e., First Community and Air Lease go up and down completely randomly.

Pair Corralation between First Community and Air Lease

Given the investment horizon of 90 days First Community is expected to generate 2.08 times less return on investment than Air Lease. But when comparing it to its historical volatility, First Community Bancshares is 1.41 times less risky than Air Lease. It trades about 0.05 of its potential returns per unit of risk. Air Lease is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,803  in Air Lease on September 19, 2024 and sell it today you would earn a total of  105.00  from holding Air Lease or generate 2.19% return on investment over 90 days.

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

First Community Bancshares  vs.  Air Lease

First Community Banc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Community Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, First Community is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Air Lease

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Lease are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Air Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Community and Air Lease

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

The idea behind First Community Bancshares and Air Lease 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.