Correlation Between First Capital and Slate Office

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

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

Diversification Opportunities for First Capital and Slate Office

-0.15

Correlation Coefficient

First Capital  Slate Office

Good diversification

The 3 months correlation between First and Slate is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding First Capital Real and Slate Office REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Slate Office REIT 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 Real are associated (or correlated) with Slate Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Slate Office REIT has no effect on the direction of First Capital i.e., First Capital and Slate Office go up and down completely randomly.

Pair Corralation between First Capital and Slate Office

Assuming the 90 days trading horizon First Capital Real is expected to under-perform the Slate Office. But the stock apears to be less risky and, when comparing its historical volatility, First Capital Real is 10.35 times less risky than Slate Office. The stock trades about -0.1 of its potential returns per unit of risk. The Slate Office REIT is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  37.00  in Slate Office REIT on September 15, 2024 and sell it today you would earn a total of  3.00  from holding Slate Office REIT or generate 8.11% return on investment over 90 days.

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

First Capital Real  vs.  Slate Office REIT

First Capital Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital Real has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Slate Office REIT

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Slate Office REIT are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Slate Office sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and Slate Office

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

The idea behind First Capital Real and Slate Office REIT 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.