Correlation Between First Financial and CB Financial
Can any of the company-specific risk be diversified away by investing in both First Financial and CB 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 First Financial and CB Financial 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 CB Financial Services, you can compare the effects of market volatilities on First Financial and CB 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 First Financial with a short position of CB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and CB Financial.
Diversification Opportunities for First Financial and CB Financial
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and CBFV is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and CB Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CB Financial Services 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 CB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CB Financial Services has no effect on the direction of First Financial i.e., First Financial and CB Financial go up and down completely randomly.
Pair Corralation between First Financial and CB Financial
Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the CB Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 1.33 times less risky than CB Financial. The stock trades about -0.08 of its potential returns per unit of risk. The CB Financial Services is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 2,833 in CB Financial Services on August 24, 2024 and sell it today you would earn a total of 157.00 from holding CB Financial Services or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Northwest vs. CB Financial Services
Performance |
| Timeline |
| First Financial Northwest |
| CB Financial Services |
First Financial and CB Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and CB Financial
The main advantage of trading using opposite First Financial and CB Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, CB 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 CB Financial will offset losses from the drop in CB Financial's long position.| First Financial vs. Home Federal Bancorp | First Financial vs. First Northwest Bancorp | First Financial vs. First Capital | First Financial vs. Community West Bancshares |
| CB Financial vs. Magyar Bancorp | CB Financial vs. Home Federal Bancorp | CB Financial vs. Community West Bancshares | CB Financial vs. Lake Shore Bancorp |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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