Correlation Between First Financial and Financial Institutions

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

Diversification Opportunities for First Financial and Financial Institutions

-0.56

Correlation Coefficient

First Financial  Financial Institutions

Excellent diversification

The 3 months correlation between First and Financial is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions 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 Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of First Financial i.e., First Financial and Financial Institutions go up and down completely randomly.

Pair Corralation between First Financial and Financial Institutions

Given the investment horizon of 90 days First Financial is expected to generate 3.7 times less return on investment than Financial Institutions. But when comparing it to its historical volatility, First Financial Northwest is 1.83 times less risky than Financial Institutions. It trades about 0.03 of its potential returns per unit of risk. Financial Institutions is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,754  in Financial Institutions on January 30, 2025 and sell it today you would earn a total of  810.00  from holding Financial Institutions or generate 46.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.27%
Values	Daily Returns

First Financial Northwest  vs.  Financial Institutions

First Financial Northwest

Risk-Adjusted Performance

Insignificant

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 conflicting basic indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Financial Institutions

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Financial and Financial Institutions

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

The idea behind First Financial Northwest and Financial Institutions 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.