Correlation Between Bank Central and First Community

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

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

Diversification Opportunities for Bank Central and First Community

0.6

Correlation Coefficient

Bank Central  First Community

Poor diversification

The 3 months correlation between Bank and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Bank Central 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 Bank Central Asia 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 Bank Central i.e., Bank Central and First Community go up and down completely randomly.

Pair Corralation between Bank Central and First Community

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the First Community. In addition to that, Bank Central is 1.5 times more volatile than First Community. It trades about -0.13 of its total potential returns per unit of risk. First Community is currently generating about -0.13 per unit of volatility. If you would invest  914.00  in First Community on December 19, 2024 and sell it today you would lose (84.00) from holding First Community or give up 9.19% of portfolio value over 90 days.

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

Bank Central Asia  vs.  First Community

Bank Central Asia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

First Community

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Bank Central and First Community

The main advantage of trading using opposite Bank Central and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central 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 Bank Central Asia 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.