Correlation Between First Capital and First National

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

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

Diversification Opportunities for First Capital and First National

-0.84

Correlation Coefficient

First Capital  First National

Pay attention - limited upside

The 3 months correlation between First and First is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and First National Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Corp and First Capital 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 Capital are associated (or correlated) with First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Corp has no effect on the direction of First Capital i.e., First Capital and First National go up and down completely randomly.

Pair Corralation between First Capital and First National

Given the investment horizon of 90 days First Capital is expected to generate 1.08 times less return on investment than First National. In addition to that, First Capital is 1.45 times more volatile than First National Corp. It trades about 0.04 of its total potential returns per unit of risk. First National Corp is currently generating about 0.06 per unit of volatility. If you would invest  1,629  in First National Corp on September 28, 2024 and sell it today you would earn a total of  748.00  from holding First National Corp or generate 45.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

First Capital  vs.  First National Corp

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

First National Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First National Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, First National exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and First National

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

The idea behind First Capital and First National Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.