Correlation Between 1st Capital and Prime Meridian

Can any of the company-specific risk be diversified away by investing in both 1st Capital and Prime Meridian 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 Prime Meridian 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 Prime Meridian Holding, you can compare the effects of market volatilities on 1st Capital and Prime Meridian 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 Prime Meridian. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Capital and Prime Meridian.

Diversification Opportunities for 1st Capital and Prime Meridian

0.68

Correlation Coefficient

1st Capital  Prime Meridian

Poor diversification

The 3 months correlation between 1st and Prime is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding 1st Capital Bank and Prime Meridian Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Meridian Holding 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 Prime Meridian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Meridian Holding has no effect on the direction of 1st Capital i.e., 1st Capital and Prime Meridian go up and down completely randomly.

Pair Corralation between 1st Capital and Prime Meridian

Given the investment horizon of 90 days 1st Capital is expected to generate 1.9 times less return on investment than Prime Meridian. But when comparing it to its historical volatility, 1st Capital Bank is 4.32 times less risky than Prime Meridian. It trades about 0.44 of its potential returns per unit of risk. Prime Meridian Holding is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,400  in Prime Meridian Holding on September 2, 2024 and sell it today you would earn a total of  500.00  from holding Prime Meridian Holding or generate 20.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	34.38%
Values	Daily Returns

1st Capital Bank  vs.  Prime Meridian Holding

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 January 2025.

Prime Meridian Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Meridian Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Prime Meridian reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with 1st Capital and Prime Meridian

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

The idea behind 1st Capital Bank and Prime Meridian Holding 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.