Correlation Between First Community and Foreign Trade

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

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

Diversification Opportunities for First Community and Foreign Trade

-0.11

Correlation Coefficient

First Community  Foreign Trade

Good diversification

The 3 months correlation between First and Foreign is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank 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 Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of First Community i.e., First Community and Foreign Trade go up and down completely randomly.

Pair Corralation between First Community and Foreign Trade

Given the investment horizon of 90 days First Community is expected to generate 3.97 times less return on investment than Foreign Trade. In addition to that, First Community is 1.1 times more volatile than Foreign Trade Bank. It trades about 0.02 of its total potential returns per unit of risk. Foreign Trade Bank is currently generating about 0.1 per unit of volatility. If you would invest  3,080  in Foreign Trade Bank on October 10, 2024 and sell it today you would earn a total of  588.00  from holding Foreign Trade Bank or generate 19.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

First Community  vs.  Foreign Trade Bank

First Community

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, First Community is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Foreign Trade Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Community and Foreign Trade

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

The idea behind First Community and Foreign Trade Bank 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.