Correlation Between Sierra Bancorp and First Capital

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

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

Diversification Opportunities for Sierra Bancorp and First Capital

-0.26

Correlation Coefficient

Sierra Bancorp  First Capital

Very good diversification

The 3 months correlation between Sierra and First is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Bancorp and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital and Sierra Bancorp 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 Sierra Bancorp are associated (or correlated) with First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital has no effect on the direction of Sierra Bancorp i.e., Sierra Bancorp and First Capital go up and down completely randomly.

Pair Corralation between Sierra Bancorp and First Capital

Given the investment horizon of 90 days Sierra Bancorp is expected to generate 1.02 times more return on investment than First Capital. However, Sierra Bancorp is 1.02 times more volatile than First Capital. It trades about 0.05 of its potential returns per unit of risk. First Capital is currently generating about 0.04 per unit of risk. If you would invest  2,024  in Sierra Bancorp on September 1, 2024 and sell it today you would earn a total of  1,123  from holding Sierra Bancorp or generate 55.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.38%
Values	Daily Returns

Sierra Bancorp  vs.  First Capital

Sierra Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Sierra Bancorp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

First Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Sierra Bancorp and First Capital

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

The idea behind Sierra Bancorp and First Capital 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.