Correlation Between First Capital and National Bank

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

By analyzing existing cross correlation between First Capital and National Bank Holdings, you can compare the effects of market volatilities on First Capital and National Bank 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 National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Capital and National Bank.

Diversification Opportunities for First Capital and National Bank

0.24

Correlation Coefficient

First Capital  National Bank

Modest diversification

The 3 months correlation between First and National is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of First Capital i.e., First Capital and National Bank go up and down completely randomly.

Pair Corralation between First Capital and National Bank

Given the investment horizon of 90 days First Capital is expected to generate 2.18 times less return on investment than National Bank. In addition to that, First Capital is 1.05 times more volatile than National Bank Holdings. It trades about 0.07 of its total potential returns per unit of risk. National Bank Holdings is currently generating about 0.15 per unit of volatility. If you would invest  3,986  in National Bank Holdings on August 13, 2024 and sell it today you would earn a total of  1,026  from holding National Bank Holdings or generate 25.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

First Capital  vs.  National Bank Holdings

First Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, First Capital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

National Bank Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, National Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and National Bank

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

The idea behind First Capital and National Bank Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.