Correlation Between CNB and First Financial

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

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

Diversification Opportunities for CNB and First Financial

0.53

Correlation Coefficient

CNB  First Financial

Very weak diversification

The 3 months correlation between CNB and First is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding CNB Corp. 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 CNB 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 CNB Corporation 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 CNB i.e., CNB and First Financial go up and down completely randomly.

Pair Corralation between CNB and First Financial

Given the investment horizon of 90 days CNB is expected to generate 1.17 times less return on investment than First Financial. In addition to that, CNB is 1.44 times more volatile than First Financial Northwest. It trades about 0.03 of its total potential returns per unit of risk. First Financial Northwest is currently generating about 0.04 per unit of volatility. If you would invest  1,415  in First Financial Northwest on October 4, 2024 and sell it today you would earn a total of  740.00  from holding First Financial Northwest or generate 52.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.23%
Values	Daily Returns

CNB Corp.  vs.  First Financial Northwest

CNB Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, CNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 CNB and First Financial

The main advantage of trading using opposite CNB and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNB 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 CNB Corporation 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.