Correlation Between 1st Capital and American Riviera

Can any of the company-specific risk be diversified away by investing in both 1st Capital and American Riviera 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 1st Capital and American Riviera into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1st Capital Bank and American Riviera Bank, you can compare the effects of market volatilities on 1st Capital and American Riviera 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 1st Capital with a short position of American Riviera. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Capital and American Riviera.

Diversification Opportunities for 1st Capital and American Riviera

0.79

Correlation Coefficient

1st Capital  American Riviera

Poor diversification

The 3 months correlation between 1st and American is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding 1st Capital Bank and American Riviera Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Riviera Bank and 1st 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 1st Capital Bank are associated (or correlated) with American Riviera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Riviera Bank has no effect on the direction of 1st Capital i.e., 1st Capital and American Riviera go up and down completely randomly.

Pair Corralation between 1st Capital and American Riviera

Given the investment horizon of 90 days 1st Capital is expected to generate 1.1 times less return on investment than American Riviera. But when comparing it to its historical volatility, 1st Capital Bank is 1.89 times less risky than American Riviera. It trades about 0.44 of its potential returns per unit of risk. American Riviera Bank is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,778  in American Riviera Bank on August 31, 2024 and sell it today you would earn a total of  209.00  from holding American Riviera Bank or generate 11.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	34.92%
Values	Daily Returns

1st Capital Bank  vs.  American Riviera Bank

1st Capital Bank

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days 1st Capital Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat conflicting basic indicators, 1st Capital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

American Riviera Bank

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Riviera Bank are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, American Riviera may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with 1st Capital and American Riviera

The main advantage of trading using opposite 1st Capital and American Riviera positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Capital position performs unexpectedly, American Riviera 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 American Riviera will offset losses from the drop in American Riviera's long position.

The idea behind 1st Capital Bank and American Riviera Bank 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.