Correlation Between First Capital and Firm Capital

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

By analyzing existing cross correlation between First Capital Real and Firm Capital Mortgage, you can compare the effects of market volatilities on First Capital and Firm Capital 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 Capital with a short position of Firm Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Capital and Firm Capital.

Diversification Opportunities for First Capital and Firm Capital

0.6

Correlation Coefficient

First Capital  Firm Capital

Poor diversification

The 3 months correlation between First and Firm is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Capital Real and Firm Capital Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firm Capital Mortgage and First Capital 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 Capital Real are associated (or correlated) with Firm Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firm Capital Mortgage has no effect on the direction of First Capital i.e., First Capital and Firm Capital go up and down completely randomly.

Pair Corralation between First Capital and Firm Capital

Assuming the 90 days trading horizon First Capital Real is expected to generate 1.97 times more return on investment than Firm Capital. However, First Capital is 1.97 times more volatile than Firm Capital Mortgage. It trades about 0.25 of its potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.22 per unit of risk. If you would invest  1,622  in First Capital Real on April 22, 2025 and sell it today you would earn a total of  266.00  from holding First Capital Real or generate 16.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

First Capital Real  vs.  Firm Capital Mortgage

First Capital Real

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Capital Real are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, First Capital sustained solid returns over the last few months and may actually be approaching a breakup point.

Firm Capital Mortgage

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Firm Capital may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with First Capital and Firm Capital

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

The idea behind First Capital Real and Firm Capital Mortgage 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.