Correlation Between First Financial and Dime Community

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

Diversification Opportunities for First Financial and Dime Community

-0.09

Correlation Coefficient

First Financial  Dime Community

Good diversification

The 3 months correlation between First and Dime is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and Dime Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dime Community 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 Bankshares are associated (or correlated) with Dime Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dime Community Bancshares has no effect on the direction of First Financial i.e., First Financial and Dime Community go up and down completely randomly.

Pair Corralation between First Financial and Dime Community

Given the investment horizon of 90 days First Financial Bankshares is expected to generate 1.49 times more return on investment than Dime Community. However, First Financial is 1.49 times more volatile than Dime Community Bancshares. It trades about 0.07 of its potential returns per unit of risk. Dime Community Bancshares is currently generating about 0.06 per unit of risk. If you would invest  2,965  in First Financial Bankshares on September 13, 2024 and sell it today you would earn a total of  1,153  from holding First Financial Bankshares or generate 38.89% return on investment over 90 days.

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

First Financial Bankshares  vs.  Dime Community Bancshares

First Financial Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bankshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, First Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Dime Community Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dime Community Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Dime Community is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Financial and Dime Community

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

The idea behind First Financial Bankshares and Dime Community 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.