Correlation Between First State and Federal Home
Can any of the company-specific risk be diversified away by investing in both First State and Federal Home 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 State and Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First State Financial and Federal Home Loan, you can compare the effects of market volatilities on First State and Federal Home 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 State with a short position of Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of First State and Federal Home.
Diversification Opportunities for First State and Federal Home
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Federal is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding First State Financial and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan and First State 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 State Financial are associated (or correlated) with Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of First State i.e., First State and Federal Home go up and down completely randomly.
Pair Corralation between First State and Federal Home
Given the investment horizon of 90 days First State Financial is expected to generate 5.74 times more return on investment than Federal Home. However, First State is 5.74 times more volatile than Federal Home Loan. It trades about 0.1 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.08 per unit of risk. If you would invest 4.80 in First State Financial on August 29, 2024 and sell it today you would lose (0.33) from holding First State Financial or give up 6.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 31.25% |
| Values | Daily Returns |
First State Financial vs. Federal Home Loan
Performance |
| Timeline |
| First State Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Federal Home Loan |
First State and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First State and Federal Home
The main advantage of trading using opposite First State and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First State position performs unexpectedly, Federal Home 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 Federal Home will offset losses from the drop in Federal Home's long position.| First State vs. First Interstate BancSystem | First State vs. First Financial Bankshares | First State vs. Independent Bank Group | First State vs. CVB Financial |
| Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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