Correlation Between First Financial and Banner

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

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

Diversification Opportunities for First Financial and Banner

0.38

Correlation Coefficient

First Financial  Banner

Weak diversification

The 3 months correlation between First and Banner is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Banner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banner 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 Northwest are associated (or correlated) with Banner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banner has no effect on the direction of First Financial i.e., First Financial and Banner go up and down completely randomly.

Pair Corralation between First Financial and Banner

Given the investment horizon of 90 days First Financial Northwest is expected to generate 1.44 times more return on investment than Banner. However, First Financial is 1.44 times more volatile than Banner. It trades about 0.06 of its potential returns per unit of risk. Banner is currently generating about 0.02 per unit of risk. If you would invest  2,129  in First Financial Northwest on December 19, 2024 and sell it today you would earn a total of  137.00  from holding First Financial Northwest or generate 6.43% return on investment over 90 days.

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

First Financial Northwest  vs.  Banner

First Financial Northwest

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Northwest are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Banner

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Financial and Banner

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

The idea behind First Financial Northwest and Banner 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.