Correlation Between First Financial and Farmers Merchants
Can any of the company-specific risk be diversified away by investing in both First Financial and Farmers Merchants 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 Farmers Merchants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Financial and Farmers Merchants Bancorp, you can compare the effects of market volatilities on First Financial and Farmers Merchants 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 Farmers Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and Farmers Merchants.
Diversification Opportunities for First Financial and Farmers Merchants
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Farmers is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding First Financial and Farmers Merchants Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Merchants 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 are associated (or correlated) with Farmers Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Merchants Bancorp has no effect on the direction of First Financial i.e., First Financial and Farmers Merchants go up and down completely randomly.
Pair Corralation between First Financial and Farmers Merchants
Given the investment horizon of 90 days First Financial is expected to generate 1.39 times more return on investment than Farmers Merchants. However, First Financial is 1.39 times more volatile than Farmers Merchants Bancorp. It trades about 0.09 of its potential returns per unit of risk. Farmers Merchants Bancorp is currently generating about 0.04 per unit of risk. If you would invest 3,637 in First Financial on September 1, 2024 and sell it today you would earn a total of 1,274 from holding First Financial or generate 35.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.21% |
| Values | Daily Returns |
First Financial vs. Farmers Merchants Bancorp
Performance |
| Timeline |
| First Financial |
| Farmers Merchants Bancorp |
First Financial and Farmers Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Financial and Farmers Merchants
The main advantage of trading using opposite First Financial and Farmers Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, Farmers Merchants 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 Farmers Merchants will offset losses from the drop in Farmers Merchants' long position.| First Financial vs. Chemung Financial Corp | First Financial vs. Citizens Northern Corp | First Financial vs. National Bankshares | First Financial vs. Fidelity DD Bancorp |
| Farmers Merchants vs. PSB Holdings | Farmers Merchants vs. Eagle Financial Services | Farmers Merchants vs. National Capital Bank | Farmers Merchants vs. Community Heritage Financial |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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