Correlation Between First CommunityPFD and Farmers Bank

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

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

Diversification Opportunities for First CommunityPFD and Farmers Bank

-0.41

Correlation Coefficient

First CommunityPFD  Farmers Bank

Very good diversification

The 3 months correlation between First and Farmers is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Community and The Farmers Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bank 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 Farmers Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bank has no effect on the direction of First CommunityPFD i.e., First CommunityPFD and Farmers Bank go up and down completely randomly.

Pair Corralation between First CommunityPFD and Farmers Bank

Assuming the 90 days horizon First Community is expected to under-perform the Farmers Bank. But the pink sheet apears to be less risky and, when comparing its historical volatility, First Community is 6.68 times less risky than Farmers Bank. The pink sheet trades about -0.13 of its potential returns per unit of risk. The The Farmers Bank is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,300  in The Farmers Bank on December 29, 2024 and sell it today you would earn a total of  25.00  from holding The Farmers Bank or generate 1.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

First Community  vs.  The Farmers Bank

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 newest stock price agitation, may contribute to short-term losses for the retail investors.

Farmers Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Farmers Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Farmers Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First CommunityPFD and Farmers Bank

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

The idea behind First Community and The Farmers 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.