Correlation Between Business First and First Financial
Can any of the company-specific risk be diversified away by investing in both Business First and First Financial 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 Business First and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Business First Bancshares and First Financial Northwest, you can compare the effects of market volatilities on Business First and First Financial 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 Business First with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Business First and First Financial.
Diversification Opportunities for Business First and First Financial
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Business and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Business First Bancshares and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest and Business First 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 Business First Bancshares are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Northwest has no effect on the direction of Business First i.e., Business First and First Financial go up and down completely randomly.
Pair Corralation between Business First and First Financial
Given the investment horizon of 90 days Business First Bancshares is expected to generate 2.36 times more return on investment than First Financial. However, Business First is 2.36 times more volatile than First Financial Northwest. It trades about 0.04 of its potential returns per unit of risk. First Financial Northwest is currently generating about 0.02 per unit of risk. If you would invest 2,186 in Business First Bancshares on December 5, 2024 and sell it today you would earn a total of 358.00 from holding Business First Bancshares or generate 16.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Business First Bancshares vs. First Financial Northwest
Performance |
| Timeline |
| Business First Bancshares |
| First Financial Northwest |
Business First and First Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Business First and First Financial
The main advantage of trading using opposite Business First and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First position performs unexpectedly, First Financial 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 Financial will offset losses from the drop in First Financial's long position.| Business First vs. First Community | ||
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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