Correlation Between Discount Investment and First International

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

By analyzing existing cross correlation between Discount Investment Corp and First International Bank, you can compare the effects of market volatilities on Discount Investment and First International 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 Discount Investment with a short position of First International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discount Investment and First International.

Diversification Opportunities for Discount Investment and First International

-0.13

Correlation Coefficient

Discount Investment  First International

Good diversification

The 3 months correlation between Discount and First is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Discount Investment Corp and First International Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First International Bank and Discount Investment 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 Discount Investment Corp are associated (or correlated) with First International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First International Bank has no effect on the direction of Discount Investment i.e., Discount Investment and First International go up and down completely randomly.

Pair Corralation between Discount Investment and First International

Assuming the 90 days trading horizon Discount Investment Corp is expected to under-perform the First International. In addition to that, Discount Investment is 1.2 times more volatile than First International Bank. It trades about -0.1 of its total potential returns per unit of risk. First International Bank is currently generating about -0.03 per unit of volatility. If you would invest  1,511,396  in First International Bank on February 28, 2024 and sell it today you would lose (50,396) from holding First International Bank or give up 3.33% of portfolio value over 90 days.

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

Discount Investment Corp  vs.  First International Bank

Discount Investment Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Discount Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

First International Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First International Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Discount Investment and First International

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

The idea behind Discount Investment Corp and First International Bank 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.