Correlation Between First Advantage and System1

Can any of the company-specific risk be diversified away by investing in both First Advantage and System1 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 Advantage and System1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Advantage Corp and System1, you can compare the effects of market volatilities on First Advantage and System1 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 Advantage with a short position of System1. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Advantage and System1.

Diversification Opportunities for First Advantage and System1

0.41

Correlation Coefficient

First Advantage  System1

Very weak diversification

The 3 months correlation between First and System1 is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and System1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on System1 and First Advantage 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 Advantage Corp are associated (or correlated) with System1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of System1 has no effect on the direction of First Advantage i.e., First Advantage and System1 go up and down completely randomly.

Pair Corralation between First Advantage and System1

Allowing for the 90-day total investment horizon First Advantage Corp is expected to generate 0.39 times more return on investment than System1. However, First Advantage Corp is 2.54 times less risky than System1. It trades about 0.1 of its potential returns per unit of risk. System1 is currently generating about -0.05 per unit of risk. If you would invest  1,645  in First Advantage Corp on September 5, 2024 and sell it today you would earn a total of  344.00  from holding First Advantage Corp or generate 20.91% return on investment over 90 days.

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

First Advantage Corp  vs.  System1

First Advantage Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Advantage Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

System1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days System1 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with First Advantage and System1

The main advantage of trading using opposite First Advantage and System1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Advantage position performs unexpectedly, System1 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 System1 will offset losses from the drop in System1's long position.

The idea behind First Advantage Corp and System1 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.