Correlation Between First Bancshares, and Sound Financial

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

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

Diversification Opportunities for First Bancshares, and Sound Financial

-0.04

Correlation Coefficient

First Bancshares,  Sound Financial

Good diversification

The 3 months correlation between First and Sound is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding The First Bancshares, and Sound Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Financial Bancorp and First Bancshares, 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 The First Bancshares, are associated (or correlated) with Sound Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Financial Bancorp has no effect on the direction of First Bancshares, i.e., First Bancshares, and Sound Financial go up and down completely randomly.

Pair Corralation between First Bancshares, and Sound Financial

Given the investment horizon of 90 days The First Bancshares, is expected to generate 1.12 times more return on investment than Sound Financial. However, First Bancshares, is 1.12 times more volatile than Sound Financial Bancorp. It trades about 0.02 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about -0.02 per unit of risk. If you would invest  3,473  in The First Bancshares, on December 27, 2024 and sell it today you would earn a total of  32.00  from holding The First Bancshares, or generate 0.92% return on investment over 90 days.

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

The First Bancshares,  vs.  Sound Financial Bancorp

First Bancshares,

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The First Bancshares, are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, First Bancshares, is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Sound Financial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sound Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Sound Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Bancshares, and Sound Financial

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

The idea behind The First Bancshares, and Sound Financial Bancorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.