Correlation Between US Financial and First National

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

By analyzing existing cross correlation between US Financial 15 and First National Financial, you can compare the effects of market volatilities on US Financial and First National 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 US Financial with a short position of First National. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and First National.

Diversification Opportunities for US Financial and First National

0.66

Correlation Coefficient

US Financial  First National

Poor diversification

The 3 months correlation between FTU-PB and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial and US Financial 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 US Financial 15 are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of US Financial i.e., US Financial and First National go up and down completely randomly.

Pair Corralation between US Financial and First National

Assuming the 90 days trading horizon US Financial is expected to generate 3.98 times less return on investment than First National. But when comparing it to its historical volatility, US Financial 15 is 1.78 times less risky than First National. It trades about 0.06 of its potential returns per unit of risk. First National Financial is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,479  in First National Financial on September 22, 2024 and sell it today you would earn a total of  91.00  from holding First National Financial or generate 6.15% return on investment over 90 days.

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

US Financial 15  vs.  First National Financial

US Financial 15

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Financial 15 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, US Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

First National Financial

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, First National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with US Financial and First National

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

The idea behind US Financial 15 and First National Financial 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.