Correlation Between First National and Urbana
Can any of the company-specific risk be diversified away by investing in both First National and Urbana 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 National and Urbana into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First National Financial and Urbana, you can compare the effects of market volatilities on First National and Urbana 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 National with a short position of Urbana. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Urbana.
Diversification Opportunities for First National and Urbana
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between First and Urbana is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding First National Financial and Urbana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urbana and First National 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 National Financial are associated (or correlated) with Urbana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urbana has no effect on the direction of First National i.e., First National and Urbana go up and down completely randomly.
Pair Corralation between First National and Urbana
Assuming the 90 days trading horizon First National is expected to generate 1.35 times less return on investment than Urbana. But when comparing it to its historical volatility, First National Financial is 1.81 times less risky than Urbana. It trades about 0.07 of its potential returns per unit of risk. Urbana is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 375.00 in Urbana on September 3, 2024 and sell it today you would earn a total of 166.00 from holding Urbana or generate 44.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
First National Financial vs. Urbana
Performance |
| Timeline |
| First National Financial |
| Urbana |
First National and Urbana Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First National and Urbana
The main advantage of trading using opposite First National and Urbana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First National position performs unexpectedly, Urbana 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 Urbana will offset losses from the drop in Urbana's long position.| First National vs. Apple Inc CDR | First National vs. Microsoft Corp CDR | First National vs. Amazon CDR | First National vs. Alphabet Inc CDR |
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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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