Correlation Between Small Cap and First Republic

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

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

Diversification Opportunities for Small Cap and First Republic

0.0

Correlation Coefficient

Small Cap  First Republic

Pay attention - limited upside

The 3 months correlation between Small and First is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank and Small Cap 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 Small Cap Premium are associated (or correlated) with First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of Small Cap i.e., Small Cap and First Republic go up and down completely randomly.

Pair Corralation between Small Cap and First Republic

If you would invest (100.00) in First Republic Bank on December 19, 2024 and sell it today you would earn a total of  100.00  from holding First Republic Bank or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Small Cap Premium  vs.  First Republic Bank

Small Cap Premium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Premium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

First Republic Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, First Republic is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and First Republic

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

The idea behind Small Cap Premium and First Republic Bank 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.