Correlation Between First Financial and Affinity Bancshares

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

Diversification Opportunities for First Financial and Affinity Bancshares

0.48

Correlation Coefficient

First Financial  Affinity Bancshares

Very weak diversification

The 3 months correlation between First and Affinity is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bancorp and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares 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 Bancorp 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 First Financial i.e., First Financial and Affinity Bancshares go up and down completely randomly.

Pair Corralation between First Financial and Affinity Bancshares

Given the investment horizon of 90 days First Financial Bancorp is expected to generate 0.56 times more return on investment than Affinity Bancshares. However, First Financial Bancorp is 1.79 times less risky than Affinity Bancshares. It trades about -0.09 of its potential returns per unit of risk. Affinity Bancshares is currently generating about -0.08 per unit of risk. If you would invest  2,929  in First Financial Bancorp on November 29, 2024 and sell it today you would lose (237.00) from holding First Financial Bancorp or give up 8.09% of portfolio value over 90 days.

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

First Financial Bancorp  vs.  Affinity Bancshares

First Financial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Affinity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with First Financial and Affinity Bancshares

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

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.