Correlation Between First Capital and First Financial
Can any of the company-specific risk be diversified away by investing in both First Capital and First 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 First Capital and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Capital and First Financial Northwest, you can compare the effects of market volatilities on First Capital and First 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 First Capital with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Capital and First Financial.
Diversification Opportunities for First Capital and First Financial
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and First is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest and First 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 First Capital are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Northwest has no effect on the direction of First Capital i.e., First Capital and First Financial go up and down completely randomly.
Pair Corralation between First Capital and First Financial
Given the investment horizon of 90 days First Capital is expected to generate 36.19 times less return on investment than First Financial. But when comparing it to its historical volatility, First Capital is 1.67 times less risky than First Financial. It trades about 0.0 of its potential returns per unit of risk. First Financial Northwest is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,037 in First Financial Northwest on February 6, 2024 and sell it today you would earn a total of 1,003 from holding First Financial Northwest or generate 96.72% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 99.12% |
Values | Daily Returns |
First Capital vs. First Financial Northwest
Performance |
Timeline |
First Capital |
First Financial Northwest |
First Capital and First Financial Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with First Capital and First Financial
The main advantage of trading using opposite First Capital and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Capital position performs unexpectedly, First 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 First Financial will offset losses from the drop in First Financial's long position.First Capital vs. Northfield Bancorp | First Capital vs. FNB Inc | First Capital vs. Mifflinburg Bancorp | First Capital vs. Commercial National Financial |
First Financial vs. Northfield Bancorp | First Financial vs. FNB Inc | First Financial vs. Mifflinburg Bancorp | First Financial vs. Commercial National Financial |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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