Correlation Between First Business and Capital Bancorp
Can any of the company-specific risk be diversified away by investing in both First Business and Capital Bancorp 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 Business and Capital Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Business Financial and Capital Bancorp, you can compare the effects of market volatilities on First Business and Capital Bancorp 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 Business with a short position of Capital Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Business and Capital Bancorp.
Diversification Opportunities for First Business and Capital Bancorp
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and Capital is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Capital Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Bancorp and First Business 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 Business Financial are associated (or correlated) with Capital Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Bancorp has no effect on the direction of First Business i.e., First Business and Capital Bancorp go up and down completely randomly.
Pair Corralation between First Business and Capital Bancorp
Given the investment horizon of 90 days First Business Financial is expected to generate 1.12 times more return on investment than Capital Bancorp. However, First Business is 1.12 times more volatile than Capital Bancorp. It trades about 0.1 of its potential returns per unit of risk. Capital Bancorp is currently generating about 0.09 per unit of risk. If you would invest 4,402 in First Business Financial on August 31, 2024 and sell it today you would earn a total of 649.00 from holding First Business Financial or generate 14.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Business Financial vs. Capital Bancorp
Performance |
| Timeline |
| First Business Financial |
| Capital Bancorp |
First Business and Capital Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Business and Capital Bancorp
The main advantage of trading using opposite First Business and Capital Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Business position performs unexpectedly, Capital Bancorp 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 Capital Bancorp will offset losses from the drop in Capital Bancorp's long position.| First Business vs. Home Federal Bancorp | First Business vs. Lake Shore Bancorp | First Business vs. Old Point Financial | First Business vs. Parke Bancorp |
| Capital Bancorp vs. Community West Bancshares | Capital Bancorp vs. First Northwest Bancorp | Capital Bancorp vs. Home Federal Bancorp | Capital Bancorp vs. First Business Financial |
Check out your portfolio center.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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