Correlation Between First Community and Titan Machinery

Can any of the company-specific risk be diversified away by investing in both First Community and Titan Machinery 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 Titan Machinery 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 Titan Machinery, you can compare the effects of market volatilities on First Community and Titan Machinery 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 Titan Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Community and Titan Machinery.

Diversification Opportunities for First Community and Titan Machinery

0.8

Correlation Coefficient

First Community  Titan Machinery

Very poor diversification

The 3 months correlation between First and Titan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Community Bancshares and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of First Community i.e., First Community and Titan Machinery go up and down completely randomly.

Pair Corralation between First Community and Titan Machinery

Given the investment horizon of 90 days First Community Bancshares is expected to under-perform the Titan Machinery. But the stock apears to be less risky and, when comparing its historical volatility, First Community Bancshares is 1.3 times less risky than Titan Machinery. The stock trades about -0.3 of its potential returns per unit of risk. The Titan Machinery is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  1,542  in Titan Machinery on October 10, 2024 and sell it today you would lose (124.00) from holding Titan Machinery or give up 8.04% of portfolio value over 90 days.

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

First Community Bancshares  vs.  Titan Machinery

First Community Banc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, First Community is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Titan Machinery

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Titan Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Titan Machinery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Community and Titan Machinery

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

The idea behind First Community Bancshares and Titan Machinery 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.