Correlation Between National Capital and First National

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

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

Diversification Opportunities for National Capital and First National

0.1

Correlation Coefficient

National Capital  First National

Average diversification

The 3 months correlation between National and First is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding National Capital Bank and First National of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National and National Capital 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 National Capital Bank 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 has no effect on the direction of National Capital i.e., National Capital and First National go up and down completely randomly.

Pair Corralation between National Capital and First National

Given the investment horizon of 90 days National Capital Bank is expected to generate 62.31 times more return on investment than First National. However, National Capital is 62.31 times more volatile than First National of. It trades about 0.17 of its potential returns per unit of risk. First National of is currently generating about -0.05 per unit of risk. If you would invest  4,881  in National Capital Bank on October 7, 2024 and sell it today you would earn a total of  1,419  from holding National Capital Bank or generate 29.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

National Capital Bank  vs.  First National of

National Capital Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

First National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First National of 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.

Pair Trading with National Capital and First National

The main advantage of trading using opposite National Capital and First National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Capital 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 National Capital Bank and First National of 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.