Correlation Between First National and Information Services

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

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

Diversification Opportunities for First National and Information Services

-0.18

Correlation Coefficient

First National  Information Services

Good diversification

The 3 months correlation between First and Information is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding First National Financial and Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Services and First National 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 National Financial are associated (or correlated) with Information Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Services has no effect on the direction of First National i.e., First National and Information Services go up and down completely randomly.

Pair Corralation between First National and Information Services

Assuming the 90 days trading horizon First National Financial is expected to generate 0.7 times more return on investment than Information Services. However, First National Financial is 1.43 times less risky than Information Services. It trades about -0.01 of its potential returns per unit of risk. Information Services is currently generating about -0.05 per unit of risk. If you would invest  1,536  in First National Financial on December 25, 2024 and sell it today you would lose (16.00) from holding First National Financial or give up 1.04% of portfolio value over 90 days.

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

First National Financial  vs.  Information Services

First National Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days First National Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, First National is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Information Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Information Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Information Services is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First National and Information Services

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

The idea behind First National Financial and Information Services 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..