Correlation Between First Capital and Middlefield Banc

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

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

Diversification Opportunities for First Capital and Middlefield Banc

-0.2

Correlation Coefficient

First Capital  Middlefield Banc

Good diversification

The 3 months correlation between First and Middlefield is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Middlefield Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlefield Banc 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 Middlefield Banc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlefield Banc has no effect on the direction of First Capital i.e., First Capital and Middlefield Banc go up and down completely randomly.

Pair Corralation between First Capital and Middlefield Banc

Given the investment horizon of 90 days First Capital is expected to under-perform the Middlefield Banc. In addition to that, First Capital is 1.42 times more volatile than Middlefield Banc. It trades about -0.29 of its total potential returns per unit of risk. Middlefield Banc is currently generating about -0.12 per unit of volatility. If you would invest  3,223  in Middlefield Banc on September 12, 2024 and sell it today you would lose (123.00) from holding Middlefield Banc or give up 3.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

First Capital  vs.  Middlefield Banc

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.

Middlefield Banc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlefield Banc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Middlefield Banc displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and Middlefield Banc

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

The idea behind First Capital and Middlefield Banc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.