Correlation Between First Financial and National Capital

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Can any of the company-specific risk be diversified away by investing in both First Financial and National Capital 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 First Financial and National Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial and National Capital Bank, you can compare the effects of market volatilities on First Financial and National Capital 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 First Financial with a short position of National Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and National Capital.

Diversification Opportunities for First Financial and National Capital

-0.3
  Correlation Coefficient

Very good diversification

The 3 months correlation between First and National is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding First Financial and National Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Capital Bank and First Financial 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 First Financial are associated (or correlated) with National Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Capital Bank has no effect on the direction of First Financial i.e., First Financial and National Capital go up and down completely randomly.

Pair Corralation between First Financial and National Capital

Given the investment horizon of 90 days First Financial is expected to generate 203.03 times less return on investment than National Capital. But when comparing it to its historical volatility, First Financial is 48.1 times less risky than National Capital. It trades about 0.07 of its potential returns per unit of risk. National Capital Bank is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  4,693  in National Capital Bank on September 28, 2024 and sell it today you would earn a total of  1,907  from holding National Capital Bank or generate 40.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy98.39%
ValuesDaily Returns

First Financial  vs.  National Capital Bank

 Performance 
       Timeline  
First Financial 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.
National Capital Bank 

Risk-Adjusted Performance

23 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in National Capital Bank are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, National Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

First Financial and National Capital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Financial and National Capital

The main advantage of trading using opposite First Financial and National Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, National Capital 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 National Capital will offset losses from the drop in National Capital's long position.
The idea behind First Financial and National Capital 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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