Correlation Between First Financial and ConnectOne Bancorp

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

By analyzing existing cross correlation between First Financial Bankshares and ConnectOne Bancorp, you can compare the effects of market volatilities on First Financial and ConnectOne Bancorp 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 ConnectOne Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and ConnectOne Bancorp.

Diversification Opportunities for First Financial and ConnectOne Bancorp

0.96

Correlation Coefficient

First Financial  ConnectOne Bancorp

Almost no diversification

The 3 months correlation between First and ConnectOne is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and ConnectOne Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConnectOne Bancorp 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 Bankshares are associated (or correlated) with ConnectOne Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConnectOne Bancorp has no effect on the direction of First Financial i.e., First Financial and ConnectOne Bancorp go up and down completely randomly.

Pair Corralation between First Financial and ConnectOne Bancorp

Given the investment horizon of 90 days First Financial Bankshares is expected to generate 0.85 times more return on investment than ConnectOne Bancorp. However, First Financial Bankshares is 1.17 times less risky than ConnectOne Bancorp. It trades about 0.07 of its potential returns per unit of risk. ConnectOne Bancorp is currently generating about 0.05 per unit of risk. If you would invest  3,729  in First Financial Bankshares on September 14, 2024 and sell it today you would earn a total of  334.00  from holding First Financial Bankshares or generate 8.96% return on investment over 90 days.

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

First Financial Bankshares  vs.  ConnectOne Bancorp

First Financial Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bankshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ConnectOne Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ConnectOne Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ConnectOne Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Financial and ConnectOne Bancorp

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

The idea behind First Financial Bankshares and ConnectOne 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.