Correlation Between First Financial and Comerica

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

Diversification Opportunities for First Financial and Comerica

0.71

Correlation Coefficient

First Financial  Comerica

Poor diversification

The 3 months correlation between First and Comerica is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Comerica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comerica 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 Comerica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comerica has no effect on the direction of First Financial i.e., First Financial and Comerica go up and down completely randomly.

Pair Corralation between First Financial and Comerica

Given the investment horizon of 90 days First Financial Northwest is expected to generate 0.5 times more return on investment than Comerica. However, First Financial Northwest is 2.0 times less risky than Comerica. It trades about -0.1 of its potential returns per unit of risk. Comerica is currently generating about -0.08 per unit of risk. If you would invest  2,230  in First Financial Northwest on December 3, 2024 and sell it today you would lose (117.00) from holding First Financial Northwest or give up 5.25% of portfolio value over 90 days.

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

First Financial Northwest  vs.  Comerica

First Financial Northwest

Risk-Adjusted Performance

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.

Comerica

Risk-Adjusted Performance

Very Weak

Over the last 90 days Comerica has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with First Financial and Comerica

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

The idea behind First Financial Northwest and Comerica 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.