Correlation Between Potomac Bancshares and First Financial
Can any of the company-specific risk be diversified away by investing in both Potomac Bancshares 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 Potomac Bancshares and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Potomac Bancshares and First Financial Northwest, you can compare the effects of market volatilities on Potomac Bancshares 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 Potomac Bancshares with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potomac Bancshares and First Financial.
Diversification Opportunities for Potomac Bancshares and First Financial
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Potomac and First is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Potomac Bancshares 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 Potomac Bancshares 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 Potomac Bancshares 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 Potomac Bancshares i.e., Potomac Bancshares and First Financial go up and down completely randomly.
Pair Corralation between Potomac Bancshares and First Financial
Given the investment horizon of 90 days Potomac Bancshares is expected to generate 2.88 times more return on investment than First Financial. However, Potomac Bancshares is 2.88 times more volatile than First Financial Northwest. It trades about 0.23 of its potential returns per unit of risk. First Financial Northwest is currently generating about 0.11 per unit of risk. If you would invest 1,451 in Potomac Bancshares on September 3, 2024 and sell it today you would earn a total of 199.00 from holding Potomac Bancshares or generate 13.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Potomac Bancshares vs. First Financial Northwest
Performance |
| Timeline |
| Potomac Bancshares |
| First Financial Northwest |
Potomac Bancshares and First Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Potomac Bancshares and First Financial
The main advantage of trading using opposite Potomac Bancshares and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Potomac Bancshares 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.| Potomac Bancshares vs. Apollo Bancorp | Potomac Bancshares vs. The Farmers Bank | Potomac Bancshares vs. Community Bankers | Potomac Bancshares vs. CCSB Financial Corp |
| First Financial vs. JPMorgan Chase Co | First Financial vs. Citigroup | First Financial vs. Wells Fargo | First Financial vs. Toronto Dominion 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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