Correlation Between First Community and Security Federal

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

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

Diversification Opportunities for First Community and Security Federal

0.37

Correlation Coefficient

First Community  Security Federal

Weak diversification

The 3 months correlation between First and Security is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding First Community and Security Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Security Federal and First Community 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 Community are associated (or correlated) with Security Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Security Federal has no effect on the direction of First Community i.e., First Community and Security Federal go up and down completely randomly.

Pair Corralation between First Community and Security Federal

Assuming the 90 days horizon First Community is expected to generate 1.05 times more return on investment than Security Federal. However, First Community is 1.05 times more volatile than Security Federal. It trades about 0.32 of its potential returns per unit of risk. Security Federal is currently generating about -0.19 per unit of risk. If you would invest  890.00  in First Community on September 25, 2024 and sell it today you would earn a total of  50.00  from holding First Community or generate 5.62% return on investment over 90 days.

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

First Community  vs.  Security Federal

First Community

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, First Community is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Security Federal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Security Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Security Federal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with First Community and Security Federal

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

The idea behind First Community and Security Federal 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.