Correlation Between First Financial and FS Bancorp
Can any of the company-specific risk be diversified away by investing in both First Financial and FS 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 FS 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 FS Bancorp, you can compare the effects of market volatilities on First Financial and FS 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 FS Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and FS Bancorp.
Diversification Opportunities for First Financial and FS Bancorp
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between First and FSBW is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS 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 FS Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Bancorp has no effect on the direction of First Financial i.e., First Financial and FS Bancorp go up and down completely randomly.
Pair Corralation between First Financial and FS Bancorp
Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the FS Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 2.49 times less risky than FS Bancorp. The stock trades about -0.05 of its potential returns per unit of risk. The FS Bancorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 4,015 in FS Bancorp on November 3, 2024 and sell it today you would earn a total of 29.00 from holding FS Bancorp or generate 0.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
First Financial Northwest vs. FS Bancorp
Performance |
| Timeline |
| First Financial Northwest |
| FS Bancorp |
First Financial and FS Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and FS Bancorp
The main advantage of trading using opposite First Financial and FS Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, FS 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 FS Bancorp will offset losses from the drop in FS Bancorp'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 |
| FS Bancorp vs. First Community | FS Bancorp vs. Oak Valley Bancorp | FS Bancorp vs. First Financial Northwest | FS Bancorp vs. ESSA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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