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 Northwest, 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
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Home and First is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Home Federal Bancorp and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest 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 Northwest 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 generate 115.74 times more return on investment than First Financial. However, Home Federal is 115.74 times more volatile than First Financial Northwest. It trades about 0.09 of its potential returns per unit of risk. First Financial Northwest is currently generating about -0.06 per unit of risk. If you would invest 1,237 in Home Federal Bancorp on November 2, 2024 and sell it today you would earn a total of 32.00 from holding Home Federal Bancorp or generate 2.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 91.26% |
| Values | Daily Returns |
Home Federal Bancorp vs. First Financial Northwest
Performance |
| Timeline |
| Home Federal Bancorp |
| First Financial Northwest |
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.The idea behind Home Federal Bancorp and First Financial Northwest pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| First Financial vs. Home Federal Bancorp | First Financial vs. Magyar Bancorp | First Financial vs. First Capital | First Financial vs. HomeTrust Bancshares |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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