Correlation Between First Community and Newtek Business

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

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

Diversification Opportunities for First Community and Newtek Business

0.77

Correlation Coefficient

First Community  Newtek Business

Poor diversification

The 3 months correlation between First and Newtek is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services 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 Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of First Community i.e., First Community and Newtek Business go up and down completely randomly.

Pair Corralation between First Community and Newtek Business

Given the investment horizon of 90 days First Community is expected to generate 0.83 times more return on investment than Newtek Business. However, First Community is 1.2 times less risky than Newtek Business. It trades about -0.25 of its potential returns per unit of risk. Newtek Business Services is currently generating about -0.29 per unit of risk. If you would invest  2,601  in First Community on September 30, 2024 and sell it today you would lose (195.00) from holding First Community or give up 7.5% 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.  Newtek Business Services

First Community

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, First Community displayed solid returns over the last few months and may actually be approaching a breakup point.

Newtek Business Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Newtek Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Community and Newtek Business

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

The idea behind First Community and Newtek Business Services 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.