Correlation Between 1st Capital and Plumas Bancorp

Can any of the company-specific risk be diversified away by investing in both 1st Capital and Plumas 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 1st Capital and Plumas Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1st Capital Bank and Plumas Bancorp, you can compare the effects of market volatilities on 1st Capital and Plumas 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 1st Capital with a short position of Plumas Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Capital and Plumas Bancorp.

Diversification Opportunities for 1st Capital and Plumas Bancorp

0.71

Correlation Coefficient

1st Capital  Plumas Bancorp

Poor diversification

The 3 months correlation between 1st and Plumas is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding 1st Capital Bank and Plumas Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumas Bancorp and 1st Capital 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 1st Capital Bank are associated (or correlated) with Plumas Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumas Bancorp has no effect on the direction of 1st Capital i.e., 1st Capital and Plumas Bancorp go up and down completely randomly.

Pair Corralation between 1st Capital and Plumas Bancorp

Given the investment horizon of 90 days 1st Capital Bank is expected to generate 0.51 times more return on investment than Plumas Bancorp. However, 1st Capital Bank is 1.97 times less risky than Plumas Bancorp. It trades about 0.12 of its potential returns per unit of risk. Plumas Bancorp is currently generating about 0.05 per unit of risk. If you would invest  1,170  in 1st Capital Bank on October 6, 2024 and sell it today you would earn a total of  230.00  from holding 1st Capital Bank or generate 19.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	54.44%
Values	Daily Returns

1st Capital Bank  vs.  Plumas Bancorp

1st Capital Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 1st Capital Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 1st Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Plumas Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plumas Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Plumas Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 1st Capital and Plumas Bancorp

The main advantage of trading using opposite 1st Capital and Plumas Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Capital position performs unexpectedly, Plumas 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 Plumas Bancorp will offset losses from the drop in Plumas Bancorp's long position.

The idea behind 1st Capital Bank and Plumas 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.