Correlation Between First Community and First Reliance

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

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

Diversification Opportunities for First Community and First Reliance

0.48

Correlation Coefficient

First Community  First Reliance

Very weak diversification

The 3 months correlation between First and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Community Financial and First Reliance Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Reliance Bancshares and First Community 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 Community Financial are associated (or correlated) with First Reliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Reliance Bancshares has no effect on the direction of First Community i.e., First Community and First Reliance go up and down completely randomly.

Pair Corralation between First Community and First Reliance

Given the investment horizon of 90 days First Community Financial is expected to generate 0.65 times more return on investment than First Reliance. However, First Community Financial is 1.55 times less risky than First Reliance. It trades about 0.17 of its potential returns per unit of risk. First Reliance Bancshares is currently generating about 0.09 per unit of risk. If you would invest  946.00  in First Community Financial on April 28, 2025 and sell it today you would earn a total of  83.00  from holding First Community Financial or generate 8.77% return on investment over 90 days.

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

First Community Financial  vs.  First Reliance Bancshares

First Community Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Community Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, First Community may actually be approaching a critical reversion point that can send shares even higher in August 2025.

First Reliance Bancshares

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Reliance Bancshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, First Reliance may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with First Community and First Reliance

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

The idea behind First Community Financial and First Reliance Bancshares 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.