Correlation Between First Community and Benchmark Bankshares

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

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

Diversification Opportunities for First Community and Benchmark Bankshares

0.78

Correlation Coefficient

First Community  Benchmark Bankshares

Poor diversification

The 3 months correlation between First and Benchmark is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Benchmark Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Bankshares 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 Benchmark Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Bankshares has no effect on the direction of First Community i.e., First Community and Benchmark Bankshares go up and down completely randomly.

Pair Corralation between First Community and Benchmark Bankshares

Assuming the 90 days horizon First Community is expected to generate 2.04 times less return on investment than Benchmark Bankshares. But when comparing it to its historical volatility, First Community is 3.15 times less risky than Benchmark Bankshares. It trades about 0.22 of its potential returns per unit of risk. Benchmark Bankshares is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,470  in Benchmark Bankshares on October 7, 2024 and sell it today you would earn a total of  130.00  from holding Benchmark Bankshares or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

First Community  vs.  Benchmark Bankshares

First Community

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Community is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Benchmark Bankshares

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Bankshares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, Benchmark Bankshares displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Community and Benchmark Bankshares

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

The idea behind First Community and Benchmark Bankshares 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..