Correlation Between First Financial and QCR Holdings

Can any of the company-specific risk be diversified away by investing in both First Financial and QCR Holdings 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 QCR Holdings 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 QCR Holdings, you can compare the effects of market volatilities on First Financial and QCR Holdings 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 QCR Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and QCR Holdings.

Diversification Opportunities for First Financial and QCR Holdings

0.36

Correlation Coefficient

First Financial  QCR Holdings

Weak diversification

The 3 months correlation between First and QCR is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and QCR Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QCR Holdings 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 QCR Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QCR Holdings has no effect on the direction of First Financial i.e., First Financial and QCR Holdings go up and down completely randomly.

Pair Corralation between First Financial and QCR Holdings

Given the investment horizon of 90 days First Financial Northwest is expected to generate 1.36 times more return on investment than QCR Holdings. However, First Financial is 1.36 times more volatile than QCR Holdings. It trades about 0.03 of its potential returns per unit of risk. QCR Holdings is currently generating about 0.02 per unit of risk. If you would invest  1,508  in First Financial Northwest on February 1, 2024 and sell it today you would earn a total of  529.00  from holding First Financial Northwest or generate 35.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Financial Northwest  vs.  QCR Holdings

First Financial Northwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Northwest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Financial is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

QCR Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QCR Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, QCR Holdings is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Financial and QCR Holdings

The main advantage of trading using opposite First Financial and QCR Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial position performs unexpectedly, QCR Holdings 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 QCR Holdings will offset losses from the drop in QCR Holdings' long position.

The idea behind First Financial Northwest and QCR Holdings 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.