Correlation Between PSB Holdings and First Community

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

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

Diversification Opportunities for PSB Holdings and First Community

0.2

Correlation Coefficient

PSB Holdings  First Community

Modest diversification

The 3 months correlation between PSB and First is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding PSB Holdings and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and PSB Holdings 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 PSB Holdings 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 PSB Holdings i.e., PSB Holdings and First Community go up and down completely randomly.

Pair Corralation between PSB Holdings and First Community

Given the investment horizon of 90 days PSB Holdings is expected to generate 0.99 times more return on investment than First Community. However, PSB Holdings is 1.01 times less risky than First Community. It trades about -0.05 of its potential returns per unit of risk. First Community is currently generating about -0.06 per unit of risk. If you would invest  2,592  in PSB Holdings on October 25, 2024 and sell it today you would lose (22.00) from holding PSB Holdings or give up 0.85% of portfolio value over 90 days.

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

PSB Holdings  vs.  First Community

PSB Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PSB Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, PSB Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

First Community

Risk-Adjusted Performance

0 of 100

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 comparatively stable fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with PSB Holdings and First Community

The main advantage of trading using opposite PSB Holdings and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSB Holdings 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 PSB Holdings 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..