Correlation Between Retailors and First International

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

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

Diversification Opportunities for Retailors and First International

0.8

Correlation Coefficient

Retailors  First International

Very poor diversification

The 3 months correlation between Retailors and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Retailors and First International Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First International Bank and Retailors 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 Retailors are associated (or correlated) with First International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First International Bank has no effect on the direction of Retailors i.e., Retailors and First International go up and down completely randomly.

Pair Corralation between Retailors and First International

Assuming the 90 days trading horizon Retailors is expected to generate 1.03 times less return on investment than First International. In addition to that, Retailors is 2.13 times more volatile than First International Bank. It trades about 0.18 of its total potential returns per unit of risk. First International Bank is currently generating about 0.39 per unit of volatility. If you would invest  1,439,378  in First International Bank on September 18, 2024 and sell it today you would earn a total of  357,622  from holding First International Bank or generate 24.85% return on investment over 90 days.

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

Retailors  vs.  First International Bank

Retailors

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retailors are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Retailors sustained solid returns over the last few months and may actually be approaching a breakup point.

First International Bank

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in First International Bank are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Retailors and First International

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

The idea behind Retailors and First International 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.