Correlation Between First Community and First Bancshares

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

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

Diversification Opportunities for First Community and First Bancshares

-0.24

Correlation Coefficient

First Community  First Bancshares

Very good diversification

The 3 months correlation between First and First is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding First Community and First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancshares 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 First Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancshares has no effect on the direction of First Community i.e., First Community and First Bancshares go up and down completely randomly.

Pair Corralation between First Community and First Bancshares

Given the investment horizon of 90 days First Community is expected to generate 5.21 times less return on investment than First Bancshares. In addition to that, First Community is 1.24 times more volatile than First Bancshares. It trades about 0.01 of its total potential returns per unit of risk. First Bancshares is currently generating about 0.07 per unit of volatility. If you would invest  1,900  in First Bancshares on September 19, 2024 and sell it today you would earn a total of  375.00  from holding First Bancshares or generate 19.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	33.18%
Values	Daily Returns

First Community  vs.  First Bancshares

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, First Bancshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Community and First Bancshares

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

The idea behind First Community and First Bancshares 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.