Correlation Between F M and Community Bancorp

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

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

Diversification Opportunities for F M and Community Bancorp

-0.07

Correlation Coefficient

F M  Community Bancorp

Good diversification

The 3 months correlation between FMBM and Community is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding F M Bank and Community Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Bancorp and F M 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 F M Bank are associated (or correlated) with Community Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Bancorp has no effect on the direction of F M i.e., F M and Community Bancorp go up and down completely randomly.

Pair Corralation between F M and Community Bancorp

Given the investment horizon of 90 days F M is expected to generate 2.01 times less return on investment than Community Bancorp. But when comparing it to its historical volatility, F M Bank is 1.08 times less risky than Community Bancorp. It trades about 0.03 of its potential returns per unit of risk. Community Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,675  in Community Bancorp on October 12, 2024 and sell it today you would earn a total of  15.00  from holding Community Bancorp or generate 0.9% return on investment over 90 days.

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

F M Bank  vs.  Community Bancorp

F M Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days F M Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Community Bancorp

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Community Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Community 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 F M and Community Bancorp

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

The idea behind F M Bank and Community 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.