Correlation Between 1st Source and First Community

Can any of the company-specific risk be diversified away by investing in both 1st Source 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 1st Source and First Community into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1st Source and First Community, you can compare the effects of market volatilities on 1st Source 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 1st Source with a short position of First Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Source and First Community.

Diversification Opportunities for 1st Source and First Community

0.6

Correlation Coefficient

1st Source  First Community

Poor diversification

The 3 months correlation between 1st and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding 1st Source and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and 1st Source 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 1st Source 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 1st Source i.e., 1st Source and First Community go up and down completely randomly.

Pair Corralation between 1st Source and First Community

Given the investment horizon of 90 days 1st Source is expected to generate 0.91 times more return on investment than First Community. However, 1st Source is 1.1 times less risky than First Community. It trades about 0.06 of its potential returns per unit of risk. First Community is currently generating about -0.04 per unit of risk. If you would invest  5,830  in 1st Source on December 27, 2024 and sell it today you would earn a total of  311.00  from holding 1st Source or generate 5.33% return on investment over 90 days.

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

1st Source  vs.  First Community

1st Source

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 1st Source are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, 1st Source may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 very healthy fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with 1st Source and First Community

The main advantage of trading using opposite 1st Source and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Source 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 1st Source 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.