Correlation Between HCI and First American

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

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

Diversification Opportunities for HCI and First American

-0.59

Correlation Coefficient

HCI  First American

Excellent diversification

The 3 months correlation between HCI and First is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding HCI Group and First American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American and HCI 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 HCI Group are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American has no effect on the direction of HCI i.e., HCI and First American go up and down completely randomly.

Pair Corralation between HCI and First American

Considering the 90-day investment horizon HCI Group is expected to generate 1.63 times more return on investment than First American. However, HCI is 1.63 times more volatile than First American. It trades about -0.01 of its potential returns per unit of risk. First American is currently generating about -0.02 per unit of risk. If you would invest  17,435  in HCI Group on September 9, 2025 and sell it today you would lose (418.00) from holding HCI Group or give up 2.4% of portfolio value over 90 days.

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

HCI Group  vs.  First American

HCI Group

Risk-Adjusted Performance

Weakest

Over the last 90 days HCI Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, HCI is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

First American

Risk-Adjusted Performance

Weakest

Over the last 90 days First American has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First American is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HCI and First American

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

The idea behind HCI Group and First American 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.