Correlation Between Mission Valley and First United
Can any of the company-specific risk be diversified away by investing in both Mission Valley and First United 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 Mission Valley and First United into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mission Valley Bancorp and First United, you can compare the effects of market volatilities on Mission Valley and First United 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 Mission Valley with a short position of First United. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mission Valley and First United.
Diversification Opportunities for Mission Valley and First United
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Mission and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Mission Valley Bancorp and First United in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First United and Mission Valley 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 Mission Valley Bancorp are associated (or correlated) with First United. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First United has no effect on the direction of Mission Valley i.e., Mission Valley and First United go up and down completely randomly.
Pair Corralation between Mission Valley and First United
Given the investment horizon of 90 days Mission Valley is expected to generate 2.52 times less return on investment than First United. But when comparing it to its historical volatility, Mission Valley Bancorp is 1.24 times less risky than First United. It trades about 0.09 of its potential returns per unit of risk. First United is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,775 in First United on September 14, 2024 and sell it today you would earn a total of 1,781 from holding First United or generate 100.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mission Valley Bancorp vs. First United
Performance |
| Timeline |
| Mission Valley Bancorp |
| First United |
Mission Valley and First United Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mission Valley and First United
The main advantage of trading using opposite Mission Valley and First United positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mission Valley position performs unexpectedly, First United 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 United will offset losses from the drop in First United's long position.| Mission Valley vs. Pacific Valley Bank | Mission Valley vs. American Business Bk | Mission Valley vs. Pinnacle Bank | Mission Valley vs. Pacific Financial Corp |
| First United vs. First Community | First United vs. Greene County Bancorp | First United vs. Community West Bancshares | First United vs. Affinity Bancshares |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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