Correlation Between Home Federal and First Financial
Can any of the company-specific risk be diversified away by investing in both Home Federal and First 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 Home Federal and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Federal Bancorp and First Financial Bankshares, you can compare the effects of market volatilities on Home Federal and First 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 Home Federal with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Federal and First Financial.
Diversification Opportunities for Home Federal and First Financial
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Home and First is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and First Financial Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bank and Home Federal 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 Home Federal Bancorp are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Bank has no effect on the direction of Home Federal i.e., Home Federal and First Financial go up and down completely randomly.
Pair Corralation between Home Federal and First Financial
Given the investment horizon of 90 days Home Federal Bancorp is expected to under-perform the First Financial. But the stock apears to be less risky and, when comparing its historical volatility, Home Federal Bancorp is 1.38 times less risky than First Financial. The stock trades about -0.03 of its potential returns per unit of risk. The First Financial Bankshares is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 3,681 in First Financial Bankshares on August 29, 2024 and sell it today you would earn a total of 576.00 from holding First Financial Bankshares or generate 15.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Home Federal Bancorp vs. First Financial Bankshares
Performance |
| Timeline |
| Home Federal Bancorp |
| First Financial Bank |
Home Federal and First Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Home Federal and First Financial
The main advantage of trading using opposite Home Federal and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Federal position performs unexpectedly, First 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 First Financial will offset losses from the drop in First Financial's long position.| Home Federal vs. Fifth Third Bancorp | Home Federal vs. Huntington Bancshares Incorporated | Home Federal vs. MT Bank |
| First Financial vs. Fifth Third Bancorp | First Financial vs. Huntington Bancshares Incorporated | First Financial 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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