Correlation Between First Community and Commercial National

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

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

Diversification Opportunities for First Community and Commercial National

-0.08

Correlation Coefficient

First Community  Commercial National

Good diversification

The 3 months correlation between First and Commercial is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Commercial National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial National 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 Commercial National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial National has no effect on the direction of First Community i.e., First Community and Commercial National go up and down completely randomly.

Pair Corralation between First Community and Commercial National

Given the investment horizon of 90 days First Community is expected to generate 15.09 times less return on investment than Commercial National. But when comparing it to its historical volatility, First Community is 1.76 times less risky than Commercial National. It trades about 0.01 of its potential returns per unit of risk. Commercial National Financial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  897.00  in Commercial National Financial on September 16, 2024 and sell it today you would earn a total of  94.00  from holding Commercial National Financial or generate 10.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

First Community  vs.  Commercial National Financial

First Community

Risk-Adjusted Performance

0 of 100

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 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.

Commercial National

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial National Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Commercial National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Community and Commercial National

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

The idea behind First Community and Commercial National Financial 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.