Correlation Between First Financial and BankFinancial
Can any of the company-specific risk be diversified away by investing in both First Financial and BankFinancial 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 BankFinancial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial Northwest and BankFinancial, you can compare the effects of market volatilities on First Financial and BankFinancial 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 BankFinancial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and BankFinancial.
Diversification Opportunities for First Financial and BankFinancial
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and BankFinancial is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and BankFinancial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BankFinancial 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 Northwest are associated (or correlated) with BankFinancial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BankFinancial has no effect on the direction of First Financial i.e., First Financial and BankFinancial go up and down completely randomly.
Pair Corralation between First Financial and BankFinancial
Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the BankFinancial. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 2.22 times less risky than BankFinancial. The stock trades about -0.06 of its potential returns per unit of risk. The BankFinancial is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,130 in BankFinancial on December 5, 2024 and sell it today you would earn a total of 133.00 from holding BankFinancial or generate 11.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Northwest vs. BankFinancial
Performance |
| Timeline |
| First Financial Northwest |
| BankFinancial |
First Financial and BankFinancial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and BankFinancial
The main advantage of trading using opposite First Financial and BankFinancial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, BankFinancial 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 BankFinancial will offset losses from the drop in BankFinancial's long position.| First Financial vs. Home Federal Bancorp | ||
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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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