Correlation Between First Community and CF Bankshares

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

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

Diversification Opportunities for First Community and CF Bankshares

0.75

Correlation Coefficient

First Community  CF Bankshares

Poor diversification

The 3 months correlation between First and CFBK is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding First Community and CF Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Bankshares 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 are associated (or correlated) with CF Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Bankshares has no effect on the direction of First Community i.e., First Community and CF Bankshares go up and down completely randomly.

Pair Corralation between First Community and CF Bankshares

Given the investment horizon of 90 days First Community is expected to generate 0.96 times more return on investment than CF Bankshares. However, First Community is 1.05 times less risky than CF Bankshares. It trades about -0.04 of its potential returns per unit of risk. CF Bankshares is currently generating about -0.06 per unit of risk. If you would invest  2,392  in First Community on December 27, 2024 and sell it today you would lose (142.00) from holding First Community or give up 5.94% of portfolio value over 90 days.

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

First Community  vs.  CF Bankshares

First Community

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

CF Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days CF Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with First Community and CF Bankshares

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

The idea behind First Community and CF 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.