Correlation Between Block and First Advantage

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

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

Diversification Opportunities for Block and First Advantage

-0.11

Correlation Coefficient

Block  First Advantage

Good diversification

The 3 months correlation between Block and First is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Block Inc and First Advantage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Advantage Corp and Block 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 Block Inc are associated (or correlated) with First Advantage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Advantage Corp has no effect on the direction of Block i.e., Block and First Advantage go up and down completely randomly.

Pair Corralation between Block and First Advantage

Allowing for the 90-day total investment horizon Block Inc is expected to generate 1.53 times more return on investment than First Advantage. However, Block is 1.53 times more volatile than First Advantage Corp. It trades about 0.19 of its potential returns per unit of risk. First Advantage Corp is currently generating about 0.0 per unit of risk. If you would invest  6,578  in Block Inc on September 16, 2024 and sell it today you would earn a total of  2,620  from holding Block Inc or generate 39.83% return on investment over 90 days.

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

Block Inc  vs.  First Advantage Corp

Block Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Block reported solid returns over the last few months and may actually be approaching a breakup point.

First Advantage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Block and First Advantage

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

The idea behind Block Inc and First Advantage Corp 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.