Correlation Between FS Bancorp and First Capital

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

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

Diversification Opportunities for FS Bancorp and First Capital

-0.88

Correlation Coefficient

FS Bancorp  First Capital

Pay attention - limited upside

The 3 months correlation between FSBW and First is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding FS Bancorp and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital and FS 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 FS Bancorp are associated (or correlated) with First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital has no effect on the direction of FS Bancorp i.e., FS Bancorp and First Capital go up and down completely randomly.

Pair Corralation between FS Bancorp and First Capital

Given the investment horizon of 90 days FS Bancorp is expected to under-perform the First Capital. In addition to that, FS Bancorp is 1.14 times more volatile than First Capital. It trades about -0.04 of its total potential returns per unit of risk. First Capital is currently generating about 0.17 per unit of volatility. If you would invest  3,200  in First Capital on December 27, 2024 and sell it today you would earn a total of  587.00  from holding First Capital or generate 18.34% return on investment over 90 days.

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

FS Bancorp  vs.  First Capital

FS Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days FS Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, FS Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

First Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FS Bancorp and First Capital

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

The idea behind FS Bancorp and First Capital 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.