Correlation Between First Financial and First Interstate

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

Diversification Opportunities for First Financial and First Interstate

0.64

Correlation Coefficient

First Financial  First Interstate

Poor diversification

The 3 months correlation between First and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and First Interstate BancSystem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Interstate Ban 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 First Interstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Interstate Ban has no effect on the direction of First Financial i.e., First Financial and First Interstate go up and down completely randomly.

Pair Corralation between First Financial and First Interstate

Given the investment horizon of 90 days First Financial Bankshares is expected to generate 0.84 times more return on investment than First Interstate. However, First Financial Bankshares is 1.19 times less risky than First Interstate. It trades about 0.01 of its potential returns per unit of risk. First Interstate BancSystem is currently generating about -0.08 per unit of risk. If you would invest  3,620  in First Financial Bankshares on December 28, 2024 and sell it today you would earn a total of  9.00  from holding First Financial Bankshares or generate 0.25% return on investment over 90 days.

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

First Financial Bankshares  vs.  First Interstate BancSystem

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.

First Interstate Ban

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Interstate BancSystem has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with First Financial and First Interstate

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

The idea behind First Financial Bankshares and First Interstate BancSystem 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.