Correlation Between NYSE Composite and First Citizens

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

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

Diversification Opportunities for NYSE Composite and First Citizens

0.44

Correlation Coefficient

NYSE Composite  First Citizens

Very weak diversification

The 3 months correlation between NYSE and First is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares and NYSE Composite 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 NYSE Composite are associated (or correlated) with First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of NYSE Composite i.e., NYSE Composite and First Citizens go up and down completely randomly.

Pair Corralation between NYSE Composite and First Citizens

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.43 times more return on investment than First Citizens. However, NYSE Composite is 2.3 times less risky than First Citizens. It trades about 0.04 of its potential returns per unit of risk. First Citizens BancShares is currently generating about -0.13 per unit of risk. If you would invest  1,920,711  in NYSE Composite on December 21, 2024 and sell it today you would earn a total of  33,016  from holding NYSE Composite or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

NYSE Composite  vs.  First Citizens BancShares

Pair Trading with NYSE Composite and First Citizens

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

The idea behind NYSE Composite and First Citizens BancShares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.