Correlation Between First Financial and Business First

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

Diversification Opportunities for First Financial and Business First

0.9

Correlation Coefficient

First Financial  Business First

Almost no diversification

The 3 months correlation between First and Business is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bancorp and Business First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business First 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 Business First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business First Bancshares has no effect on the direction of First Financial i.e., First Financial and Business First go up and down completely randomly.

Pair Corralation between First Financial and Business First

Given the investment horizon of 90 days First Financial Bancorp is expected to generate 1.0 times more return on investment than Business First. However, First Financial is 1.0 times more volatile than Business First Bancshares. It trades about -0.09 of its potential returns per unit of risk. Business First Bancshares is currently generating about -0.12 per unit of risk. If you would invest  2,773  in First Financial Bancorp on November 29, 2024 and sell it today you would lose (81.00) from holding First Financial Bancorp or give up 2.92% of portfolio value over 90 days.

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

First Financial Bancorp  vs.  Business First 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.

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with First Financial and Business First

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

The idea behind First Financial Bancorp and Business First 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 CEOs Directory module to screen CEOs from public companies around the world.