Correlation Between WTB Financial and First CommunityPFD

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

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

Diversification Opportunities for WTB Financial and First CommunityPFD

0.76

Correlation Coefficient

WTB Financial  First CommunityPFD

Poor diversification

The 3 months correlation between WTB and First is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding WTB Financial and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First CommunityPFD and WTB 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 WTB Financial are associated (or correlated) with First CommunityPFD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First CommunityPFD has no effect on the direction of WTB Financial i.e., WTB Financial and First CommunityPFD go up and down completely randomly.

Pair Corralation between WTB Financial and First CommunityPFD

Assuming the 90 days horizon WTB Financial is expected to generate 1.29 times more return on investment than First CommunityPFD. However, WTB Financial is 1.29 times more volatile than First Community. It trades about 0.14 of its potential returns per unit of risk. First Community is currently generating about 0.12 per unit of risk. If you would invest  29,121  in WTB Financial on October 24, 2024 and sell it today you would earn a total of  1,654  from holding WTB Financial or generate 5.68% return on investment over 90 days.

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

WTB Financial  vs.  First Community

WTB Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WTB Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, WTB Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First CommunityPFD

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First CommunityPFD is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with WTB Financial and First CommunityPFD

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

The idea behind WTB Financial 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.