Correlation Between First Bancorp and First Community

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

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

Diversification Opportunities for First Bancorp and First Community

0.82

Correlation Coefficient

First Bancorp  First Community

Very poor diversification

The 3 months correlation between First and First is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and First Bancorp 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 Bancorp are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of First Bancorp i.e., First Bancorp and First Community go up and down completely randomly.

Pair Corralation between First Bancorp and First Community

Given the investment horizon of 90 days First Bancorp is expected to generate 1.23 times more return on investment than First Community. However, First Bancorp is 1.23 times more volatile than First Community. It trades about -0.15 of its potential returns per unit of risk. First Community is currently generating about -0.2 per unit of risk. If you would invest  2,936  in First Bancorp on September 24, 2024 and sell it today you would lose (165.00) from holding First Bancorp or give up 5.62% of portfolio value over 90 days.

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

First Bancorp  vs.  First Community

First Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Community

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, First Community may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Bancorp and First Community

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

The idea behind First Bancorp and First Community 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.