Correlation Between First Capital and First Community

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

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

Diversification Opportunities for First Capital and First Community

0.01

Correlation Coefficient

First Capital  First Community

Significant diversification

The 3 months correlation between First and First is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding First Capital Bancshares and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community 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 Bancshares are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of First Capital i.e., First Capital and First Community go up and down completely randomly.

Pair Corralation between First Capital and First Community

Given the investment horizon of 90 days First Capital is expected to generate 1.88 times less return on investment than First Community. In addition to that, First Capital is 1.72 times more volatile than First Community. It trades about 0.05 of its total potential returns per unit of risk. First Community is currently generating about 0.16 per unit of volatility. If you would invest  875.00  in First Community on September 18, 2024 and sell it today you would earn a total of  65.00  from holding First Community or generate 7.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

First Capital Bancshares  vs.  First Community

First Capital Bancshares

Risk-Adjusted Performance

3 of 100

Insignificant

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

First Community

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, First Community may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Capital and First Community

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

The idea behind First Capital Bancshares and First Community 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.