Correlation Between First Financial and First State
Can any of the company-specific risk be diversified away by investing in both First Financial and First State 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 Financial and First State into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial Bankshares and First State Financial, you can compare the effects of market volatilities on First Financial and First State 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 Financial with a short position of First State. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and First State.
Diversification Opportunities for First Financial and First State
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and First State Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First State Financial and First Financial 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 Financial Bankshares are associated (or correlated) with First State. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First State Financial has no effect on the direction of First Financial i.e., First Financial and First State go up and down completely randomly.
Pair Corralation between First Financial and First State
Given the investment horizon of 90 days First Financial Bankshares is expected to generate 1.17 times more return on investment than First State. However, First Financial is 1.17 times more volatile than First State Financial. It trades about 0.07 of its potential returns per unit of risk. First State Financial is currently generating about -0.27 per unit of risk. If you would invest 2,769 in First Financial Bankshares on August 28, 2024 and sell it today you would earn a total of 1,536 from holding First Financial Bankshares or generate 55.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 3.95% |
| Values | Daily Returns |
First Financial Bankshares vs. First State Financial
Performance |
| Timeline |
| First Financial Bank |
| First State Financial |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
First Financial and First State Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and First State
The main advantage of trading using opposite First Financial and First State positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, First State 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 State will offset losses from the drop in First State's long position.| First Financial vs. Fifth Third Bancorp | First Financial vs. Huntington Bancshares Incorporated | First Financial vs. MT Bank |
| First State vs. First Interstate BancSystem | First State vs. First Financial Bankshares | First State vs. Independent Bank Group | First State vs. CVB Financial |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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