Correlation Between Southern California and First Financial

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

By analyzing existing cross correlation between Southern California Bancorp and First Financial Northwest, you can compare the effects of market volatilities on Southern California 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 Southern California with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern California and First Financial.

Diversification Opportunities for Southern California and First Financial

-0.44

Correlation Coefficient

Southern California  First Financial

Very good diversification

The 3 months correlation between Southern and First is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Southern California Bancorp 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 Southern California 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 Southern California Bancorp 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 Southern California i.e., Southern California and First Financial go up and down completely randomly.

Pair Corralation between Southern California and First Financial

Given the investment horizon of 90 days Southern California Bancorp is expected to generate 1.33 times more return on investment than First Financial. However, Southern California is 1.33 times more volatile than First Financial Northwest. It trades about 0.13 of its potential returns per unit of risk. First Financial Northwest is currently generating about -0.02 per unit of risk. If you would invest  1,726  in Southern California Bancorp on September 16, 2024 and sell it today you would earn a total of  35.00  from holding Southern California Bancorp or generate 2.03% return on investment over 90 days.

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

Southern California Bancorp  vs.  First Financial Northwest

Southern California

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Southern California Bancorp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Southern California disclosed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Southern California and First Financial

The main advantage of trading using opposite Southern California and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern California 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.

The idea behind Southern California Bancorp and First Financial Northwest 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.