Correlation Between First National and SolarBank

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

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

Diversification Opportunities for First National and SolarBank

0.65

Correlation Coefficient

First National  SolarBank

Poor diversification

The 3 months correlation between First and SolarBank is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding First National Energy and SolarBank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SolarBank and First National 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 National Energy are associated (or correlated) with SolarBank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SolarBank has no effect on the direction of First National i.e., First National and SolarBank go up and down completely randomly.

Pair Corralation between First National and SolarBank

If you would invest  64.00  in First National Energy on September 3, 2024 and sell it today you would lose (54.94) from holding First National Energy or give up 85.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.54%
Values	Daily Returns

First National Energy  vs.  SolarBank

First National Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First National Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, First National is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SolarBank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SolarBank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, SolarBank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with First National and SolarBank

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

The idea behind First National Energy and SolarBank 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.