Correlation Between First CommunityPFD and CMUV Bancorp

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

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

Diversification Opportunities for First CommunityPFD and CMUV Bancorp

-0.42

Correlation Coefficient

First CommunityPFD  CMUV Bancorp

Very good diversification

The 3 months correlation between First and CMUV is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding First Community and CMUV Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMUV Bancorp and First CommunityPFD 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 CMUV Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMUV Bancorp has no effect on the direction of First CommunityPFD i.e., First CommunityPFD and CMUV Bancorp go up and down completely randomly.

Pair Corralation between First CommunityPFD and CMUV Bancorp

Assuming the 90 days horizon First Community is expected to under-perform the CMUV Bancorp. But the pink sheet apears to be less risky and, when comparing its historical volatility, First Community is 5.32 times less risky than CMUV Bancorp. The pink sheet trades about -0.13 of its potential returns per unit of risk. The CMUV Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,100  in CMUV Bancorp on December 18, 2024 and sell it today you would earn a total of  25.00  from holding CMUV Bancorp or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Community  vs.  CMUV Bancorp

First CommunityPFD

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First CommunityPFD is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

CMUV Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CMUV Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, CMUV Bancorp is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First CommunityPFD and CMUV Bancorp

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

The idea behind First Community and CMUV Bancorp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.