Correlation Between Middlefield Banc and First Community

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

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

Diversification Opportunities for Middlefield Banc and First Community

0.75

Correlation Coefficient

Middlefield Banc  First Community

Poor diversification

The 3 months correlation between Middlefield and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Middlefield Banc and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Middlefield Banc 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 Middlefield Banc 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 Middlefield Banc i.e., Middlefield Banc and First Community go up and down completely randomly.

Pair Corralation between Middlefield Banc and First Community

Given the investment horizon of 90 days Middlefield Banc is expected to generate 1.4 times more return on investment than First Community. However, Middlefield Banc is 1.4 times more volatile than First Community. It trades about 0.02 of its potential returns per unit of risk. First Community is currently generating about 0.03 per unit of risk. If you would invest  2,574  in Middlefield Banc on September 21, 2024 and sell it today you would earn a total of  375.00  from holding Middlefield Banc or generate 14.57% return on investment over 90 days.

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

Middlefield Banc  vs.  First Community

Middlefield Banc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Middlefield Banc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Middlefield Banc is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

First Community

Risk-Adjusted Performance

7 of 100

Modest

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

Pair Trading with Middlefield Banc and First Community

The main advantage of trading using opposite Middlefield Banc and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Middlefield Banc 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 Middlefield Banc 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.