Correlation Between Capital City and Bogota Financial

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

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

Diversification Opportunities for Capital City and Bogota Financial

0.43

Correlation Coefficient

Capital City  Bogota Financial

Very weak diversification

The 3 months correlation between Capital and Bogota is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Capital City Bank and Bogota Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bogota Financial Corp and Capital City 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 Capital City Bank are associated (or correlated) with Bogota Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bogota Financial Corp has no effect on the direction of Capital City i.e., Capital City and Bogota Financial go up and down completely randomly.

Pair Corralation between Capital City and Bogota Financial

Given the investment horizon of 90 days Capital City is expected to generate 1.4 times less return on investment than Bogota Financial. But when comparing it to its historical volatility, Capital City Bank is 1.04 times less risky than Bogota Financial. It trades about 0.06 of its potential returns per unit of risk. Bogota Financial Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  656.00  in Bogota Financial Corp on March 12, 2024 and sell it today you would earn a total of  26.00  from holding Bogota Financial Corp or generate 3.96% return on investment over 90 days.

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

Capital City Bank  vs.  Bogota Financial Corp

Capital City Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bogota Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bogota Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Bogota Financial is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Capital City and Bogota Financial

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

The idea behind Capital City Bank and Bogota Financial 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.