Correlation Between First Community and PSB Holdings

Can any of the company-specific risk be diversified away by investing in both First Community and PSB Holdings 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 PSB Holdings 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 PSB Holdings, you can compare the effects of market volatilities on First Community and PSB Holdings 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 PSB Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Community and PSB Holdings.

Diversification Opportunities for First Community and PSB Holdings

-0.5

Correlation Coefficient

First Community  PSB Holdings

Very good diversification

The 3 months correlation between First and PSB is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding First Community Financial and PSB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSB Holdings 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 PSB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSB Holdings has no effect on the direction of First Community i.e., First Community and PSB Holdings go up and down completely randomly.

Pair Corralation between First Community and PSB Holdings

Given the investment horizon of 90 days First Community Financial is expected to under-perform the PSB Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, First Community Financial is 1.32 times less risky than PSB Holdings. The pink sheet trades about -0.06 of its potential returns per unit of risk. The PSB Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,104  in PSB Holdings on October 4, 2024 and sell it today you would earn a total of  546.00  from holding PSB Holdings or generate 25.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	82.63%
Values	Daily Returns

First Community Financial  vs.  PSB Holdings

First Community Financial

Risk-Adjusted Performance

0 of 100

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

PSB Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSB Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, PSB Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Community and PSB Holdings

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

The idea behind First Community Financial and PSB Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.