Correlation Between First National and Firm Capital

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

Diversification Opportunities for First National and Firm Capital

0.5

Correlation Coefficient

First National  Firm Capital

Very weak diversification

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

Pair Corralation between First National and Firm Capital

Assuming the 90 days horizon First National Financial is expected to generate 1.13 times more return on investment than Firm Capital. However, First National is 1.13 times more volatile than Firm Capital Mortgage. It trades about 0.34 of its potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.13 per unit of risk. If you would invest  3,624  in First National Financial on September 4, 2024 and sell it today you would earn a total of  747.00  from holding First National Financial or generate 20.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

First National Financial  vs.  Firm Capital Mortgage

First National Financial

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, First National displayed solid returns over the last few months and may actually be approaching a breakup point.

Firm Capital Mortgage

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Firm Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First National and Firm Capital

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

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