Correlation Between First Financial and First Bancorp
Can any of the company-specific risk be diversified away by investing in both First Financial and First Bancorp 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 Bancorp 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 First Bancorp, you can compare the effects of market volatilities on First Financial and First Bancorp 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 Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and First Bancorp.
Diversification Opportunities for First Financial and First Bancorp
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between First and First is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp 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 First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of First Financial i.e., First Financial and First Bancorp go up and down completely randomly.
Pair Corralation between First Financial and First Bancorp
Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the First Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 2.98 times less risky than First Bancorp. The stock trades about -0.02 of its potential returns per unit of risk. The First Bancorp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 4,267 in First Bancorp on August 28, 2024 and sell it today you would earn a total of 653.00 from holding First Bancorp or generate 15.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Financial Northwest vs. First Bancorp
Performance |
| Timeline |
| First Financial Northwest |
| First Bancorp |
First Financial and First Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and First Bancorp
The main advantage of trading using opposite First Financial and First Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, First Bancorp 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 Bancorp will offset losses from the drop in First Bancorp's long position.| First Financial vs. Fifth Third Bancorp | First Financial vs. Huntington Bancshares Incorporated | First Financial vs. Comerica | First Financial vs. MT Bank |
| First Bancorp vs. Fifth Third Bancorp | First Bancorp vs. Huntington Bancshares Incorporated | First Bancorp vs. Comerica | First Bancorp vs. MT Bank |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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