Correlation Between Pacific Capital and The National

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

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

Diversification Opportunities for Pacific Capital and The National

1.0

Correlation Coefficient

Pacific Capital  The National

No risk reduction

The 3 months correlation between Pacific and The is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Pacific Capital Tax Free and The National Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Tax and Pacific 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 Pacific Capital Tax Free are associated (or correlated) with The National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Tax has no effect on the direction of Pacific Capital i.e., Pacific Capital and The National go up and down completely randomly.

Pair Corralation between Pacific Capital and The National

Assuming the 90 days horizon Pacific Capital Tax Free is expected to generate 0.85 times more return on investment than The National. However, Pacific Capital Tax Free is 1.18 times less risky than The National. It trades about -0.06 of its potential returns per unit of risk. The National Tax Free is currently generating about -0.06 per unit of risk. If you would invest  968.00  in Pacific Capital Tax Free on October 8, 2024 and sell it today you would lose (7.00) from holding Pacific Capital Tax Free or give up 0.72% of portfolio value over 90 days.

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

Pacific Capital Tax Free  vs.  The National Tax Free

Pacific Capital Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pacific Capital Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Pacific Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, The National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pacific Capital and The National

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

The idea behind Pacific Capital Tax Free and The National Tax Free 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.