Correlation Between First Financial and CNB

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

Diversification Opportunities for First Financial and CNB

0.53

Correlation Coefficient

First Financial  CNB

Very weak diversification

The 3 months correlation between First and CNB is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and CNB Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNB Corporation 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 CNB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNB Corporation has no effect on the direction of First Financial i.e., First Financial and CNB go up and down completely randomly.

Pair Corralation between First Financial and CNB

Given the investment horizon of 90 days First Financial Northwest is expected to generate 0.7 times more return on investment than CNB. However, First Financial Northwest is 1.44 times less risky than CNB. It trades about 0.04 of its potential returns per unit of risk. CNB Corporation is currently generating about 0.03 per unit of risk. If you would invest  1,415  in First Financial Northwest on October 4, 2024 and sell it today you would earn a total of  740.00  from holding First Financial Northwest or generate 52.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	78.23%
Values	Daily Returns

First Financial Northwest  vs.  CNB Corp.

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.

CNB Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CNB Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, CNB is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Financial and CNB

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

The idea behind First Financial Northwest and CNB Corporation 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 Transaction History module to view history of all your transactions and understand their impact on performance.