Correlation Between First Community and Community Heritage

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

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

Diversification Opportunities for First Community and Community Heritage

-0.39

Correlation Coefficient

First Community  Community Heritage

Very good diversification

The 3 months correlation between First and Community is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding First Community Financial and Community Heritage Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Heritage and First Community 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 Financial are associated (or correlated) with Community Heritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Heritage has no effect on the direction of First Community i.e., First Community and Community Heritage go up and down completely randomly.

Pair Corralation between First Community and Community Heritage

Given the investment horizon of 90 days First Community Financial is expected to under-perform the Community Heritage. In addition to that, First Community is 1.96 times more volatile than Community Heritage Financial. It trades about -0.06 of its total potential returns per unit of risk. Community Heritage Financial is currently generating about 0.2 per unit of volatility. If you would invest  2,193  in Community Heritage Financial on November 29, 2024 and sell it today you would earn a total of  182.00  from holding Community Heritage Financial or generate 8.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.63%
Values	Daily Returns

First Community Financial  vs.  Community Heritage Financial

First Community Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Community Heritage

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Community Heritage Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical indicators, Community Heritage reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Community and Community Heritage

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

The idea behind First Community Financial and Community Heritage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.