Correlation Between First Financial and Fidelity

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

Diversification Opportunities for First Financial and Fidelity

0.24

Correlation Coefficient

First Financial  Fidelity

Modest diversification

The 3 months correlation between First and Fidelity is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Fidelity DD Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity DD Bancorp 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 Fidelity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity DD Bancorp has no effect on the direction of First Financial i.e., First Financial and Fidelity go up and down completely randomly.

Pair Corralation between First Financial and Fidelity

Given the investment horizon of 90 days First Financial Northwest is expected to generate 1.11 times more return on investment than Fidelity. However, First Financial is 1.11 times more volatile than Fidelity DD Bancorp. It trades about 0.04 of its potential returns per unit of risk. Fidelity DD Bancorp is currently generating about 0.01 per unit of risk. If you would invest  1,451  in First Financial Northwest on October 6, 2024 and sell it today you would earn a total of  699.00  from holding First Financial Northwest or generate 48.17% 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.  Fidelity DD Bancorp

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.

Fidelity DD Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity DD Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Fidelity is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Financial and Fidelity

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

The idea behind First Financial Northwest and Fidelity DD Bancorp 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..