Correlation Between First Financial and Eagle Bancorp

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

Diversification Opportunities for First Financial and Eagle Bancorp

-0.02

Correlation Coefficient

First Financial  Eagle Bancorp

Good diversification

The 3 months correlation between First and Eagle is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and Eagle Bancorp Montana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Bancorp Montana 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 Eagle Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Bancorp Montana has no effect on the direction of First Financial i.e., First Financial and Eagle Bancorp go up and down completely randomly.

Pair Corralation between First Financial and Eagle Bancorp

Given the investment horizon of 90 days First Financial is expected to generate 15.16 times less return on investment than Eagle Bancorp. But when comparing it to its historical volatility, First Financial Bankshares is 1.12 times less risky than Eagle Bancorp. It trades about 0.01 of its potential returns per unit of risk. Eagle Bancorp Montana is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,484  in Eagle Bancorp Montana on December 28, 2024 and sell it today you would earn a total of  203.00  from holding Eagle Bancorp Montana or generate 13.68% 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.  Eagle Bancorp Montana

First Financial Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Financial Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, First Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Eagle Bancorp Montana

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Financial and Eagle Bancorp

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

The idea behind First Financial Bankshares and Eagle Bancorp Montana 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.