Correlation Between First National and MCAN Mortgage

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

Diversification Opportunities for First National and MCAN Mortgage

0.69

Correlation Coefficient

First National  MCAN Mortgage

Poor diversification

The 3 months correlation between First and MCAN is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First National Financial and MCAN Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCAN 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 MCAN Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCAN Mortgage has no effect on the direction of First National i.e., First National and MCAN Mortgage go up and down completely randomly.

Pair Corralation between First National and MCAN Mortgage

Assuming the 90 days horizon First National Financial is expected to under-perform the MCAN Mortgage. But the stock apears to be less risky and, when comparing its historical volatility, First National Financial is 1.21 times less risky than MCAN Mortgage. The stock trades about -0.02 of its potential returns per unit of risk. The MCAN Mortgage is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,797  in MCAN Mortgage on December 28, 2024 and sell it today you would earn a total of  53.00  from holding MCAN Mortgage or generate 2.95% return on investment over 90 days.

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

First National Financial  vs.  MCAN Mortgage

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 very healthy basic indicators, First National is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

MCAN Mortgage

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MCAN Mortgage are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, MCAN Mortgage is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First National and MCAN Mortgage

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

The idea behind First National Financial and MCAN 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.