Correlation Between Small Cap and First Citizens

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

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

Diversification Opportunities for Small Cap and First Citizens

0.12

Correlation Coefficient

Small Cap  First Citizens

Average diversification

The 3 months correlation between Small and First is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and The First Citizens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens and Small Cap 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 Small Cap Premium are associated (or correlated) with First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens has no effect on the direction of Small Cap i.e., Small Cap and First Citizens go up and down completely randomly.

Pair Corralation between Small Cap and First Citizens

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.02 times more return on investment than First Citizens. However, Small Cap Premium is 40.68 times less risky than First Citizens. It trades about 0.07 of its potential returns per unit of risk. The First Citizens is currently generating about -0.17 per unit of risk. If you would invest  2,415  in Small Cap Premium on May 18, 2025 and sell it today you would earn a total of  41.00  from holding Small Cap Premium or generate 1.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	46.03%
Values	Daily Returns

Small Cap Premium  vs.  The First Citizens

Small Cap Premium

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

First Citizens

Risk-Adjusted Performance

Weakest

Over the last 90 days The First Citizens has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in September 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Small Cap and First Citizens

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

The idea behind Small Cap Premium and The First Citizens 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.