Correlation Between Franklin Financial and Affinity Bancshares

Can any of the company-specific risk be diversified away by investing in both Franklin Financial and Affinity Bancshares 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 Franklin Financial and Affinity Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Financial Services and Affinity Bancshares, you can compare the effects of market volatilities on Franklin Financial and Affinity Bancshares 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 Franklin Financial with a short position of Affinity Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Financial and Affinity Bancshares.

Diversification Opportunities for Franklin Financial and Affinity Bancshares

0.4

Correlation Coefficient

Franklin Financial  Affinity Bancshares

Very weak diversification

The 3 months correlation between Franklin and Affinity is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Financial Services and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares and Franklin 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 Franklin Financial Services are associated (or correlated) with Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Franklin Financial i.e., Franklin Financial and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Franklin Financial and Affinity Bancshares

Given the investment horizon of 90 days Franklin Financial Services is expected to generate 1.29 times more return on investment than Affinity Bancshares. However, Franklin Financial is 1.29 times more volatile than Affinity Bancshares. It trades about 0.22 of its potential returns per unit of risk. Affinity Bancshares is currently generating about 0.11 per unit of risk. If you would invest  2,810  in Franklin Financial Services on January 4, 2025 and sell it today you would earn a total of  678.00  from holding Franklin Financial Services or generate 24.13% return on investment over 90 days.

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

Franklin Financial Services  vs.  Affinity Bancshares

Franklin Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Affinity Bancshares

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Affinity Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Affinity Bancshares may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Pair Trading with Franklin Financial and Affinity Bancshares

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

The idea behind Franklin Financial Services and Affinity Bancshares 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.