Correlation Between First IC and Main Street

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

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

Diversification Opportunities for First IC and Main Street

-0.69

Correlation Coefficient

First IC  Main Street

Excellent diversification

The 3 months correlation between First and Main is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding First IC and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial and First IC 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 IC are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of First IC i.e., First IC and Main Street go up and down completely randomly.

Pair Corralation between First IC and Main Street

Given the investment horizon of 90 days First IC is expected to generate 3.78 times more return on investment than Main Street. However, First IC is 3.78 times more volatile than Main Street Financial. It trades about 0.14 of its potential returns per unit of risk. Main Street Financial is currently generating about -0.02 per unit of risk. If you would invest  895.00  in First IC on December 1, 2024 and sell it today you would earn a total of  135.00  from holding First IC or generate 15.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	63.33%
Values	Daily Returns

First IC  vs.  Main Street Financial

First IC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First IC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, First IC sustained solid returns over the last few months and may actually be approaching a breakup point.

Main Street Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Street Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Main Street is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First IC and Main Street

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

The idea behind First IC and Main Street 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.