Correlation Between First Financial and Franklin Financial

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

Diversification Opportunities for First Financial and Franklin Financial

0.11

Correlation Coefficient

First Financial  Franklin Financial

Average diversification

The 3 months correlation between First and Franklin is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Franklin Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin 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 Franklin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Financial has no effect on the direction of First Financial i.e., First Financial and Franklin Financial go up and down completely randomly.

Pair Corralation between First Financial and Franklin Financial

Given the investment horizon of 90 days First Financial is expected to generate 2.92 times less return on investment than Franklin Financial. In addition to that, First Financial is 1.31 times more volatile than Franklin Financial Services. It trades about 0.05 of its total potential returns per unit of risk. Franklin Financial Services is currently generating about 0.18 per unit of volatility. If you would invest  2,974  in Franklin Financial Services on December 29, 2024 and sell it today you would earn a total of  573.00  from holding Franklin Financial Services or generate 19.27% return on investment over 90 days.

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

First Financial Northwest  vs.  Franklin Financial Services

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 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Franklin Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Financial and Franklin Financial

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

The idea behind First Financial Northwest and Franklin Financial Services 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.