Correlation Between First Community and Kentucky First

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

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

Diversification Opportunities for First Community and Kentucky First

0.68

Correlation Coefficient

First Community  Kentucky First

Poor diversification

The 3 months correlation between First and Kentucky is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Kentucky First Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kentucky First Federal 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 Kentucky First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kentucky First Federal has no effect on the direction of First Community i.e., First Community and Kentucky First go up and down completely randomly.

Pair Corralation between First Community and Kentucky First

Given the investment horizon of 90 days First Community is expected to under-perform the Kentucky First. But the stock apears to be less risky and, when comparing its historical volatility, First Community is 1.69 times less risky than Kentucky First. The stock trades about -0.03 of its potential returns per unit of risk. The Kentucky First Federal is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  301.00  in Kentucky First Federal on December 29, 2024 and sell it today you would lose (11.00) from holding Kentucky First Federal or give up 3.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

First Community  vs.  Kentucky First Federal

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.

Kentucky First Federal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kentucky First Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Kentucky First is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Community and Kentucky First

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

The idea behind First Community and Kentucky First Federal 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.