Correlation Between First Financial and CF Financial

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

Diversification Opportunities for First Financial and CF Financial

-0.34

Correlation Coefficient

First Financial  CF Financial

Very good diversification

The 3 months correlation between First and CFFI is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and CF Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Financial 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 CF Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Financial has no effect on the direction of First Financial i.e., First Financial and CF Financial go up and down completely randomly.

Pair Corralation between First Financial and CF Financial

Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the CF Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 3.11 times less risky than CF Financial. The stock trades about -0.02 of its potential returns per unit of risk. The CF Financial is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  5,730  in CF Financial on September 13, 2024 and sell it today you would earn a total of  2,191  from holding CF Financial or generate 38.24% return on investment over 90 days.

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

First Financial Northwest  vs.  CF Financial

First Financial Northwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Northwest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Financial is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

CF Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CF Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, CF Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Financial and CF Financial

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

The idea behind First Financial Northwest and CF Financial 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 Stocks Directory module to find actively traded stocks across global markets.