Correlation Between Affinity Bancshares and First Community

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

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

Diversification Opportunities for Affinity Bancshares and First Community

-0.2

Correlation Coefficient

Affinity Bancshares  First Community

Good diversification

The 3 months correlation between Affinity and First is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Affinity Bancshares and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community and Affinity Bancshares 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 Affinity Bancshares are associated (or correlated) with First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of Affinity Bancshares i.e., Affinity Bancshares and First Community go up and down completely randomly.

Pair Corralation between Affinity Bancshares and First Community

Given the investment horizon of 90 days Affinity Bancshares is expected to generate 0.81 times more return on investment than First Community. However, Affinity Bancshares is 1.24 times less risky than First Community. It trades about -0.13 of its potential returns per unit of risk. First Community is currently generating about -0.13 per unit of risk. If you would invest  1,827  in Affinity Bancshares on January 4, 2025 and sell it today you would lose (71.00) from holding Affinity Bancshares or give up 3.89% of portfolio value over 90 days.

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

Affinity Bancshares  vs.  First Community

Affinity Bancshares

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Affinity Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Affinity Bancshares may actually be approaching a critical reversion point that can send shares even higher in May 2025.

First Community

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Affinity Bancshares and First Community

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

The idea behind Affinity Bancshares and First Community 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 Global Correlations module to find global opportunities by holding instruments from different markets.