Correlation Between First Financial and Hilltop Holdings

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

Diversification Opportunities for First Financial and Hilltop Holdings

0.69

Correlation Coefficient

First Financial  Hilltop Holdings

Poor diversification

The 3 months correlation between First and Hilltop is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Hilltop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilltop Holdings 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 Hilltop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilltop Holdings has no effect on the direction of First Financial i.e., First Financial and Hilltop Holdings go up and down completely randomly.

Pair Corralation between First Financial and Hilltop Holdings

Given the investment horizon of 90 days First Financial Northwest is expected to under-perform the Hilltop Holdings. But the stock apears to be less risky and, when comparing its historical volatility, First Financial Northwest is 1.78 times less risky than Hilltop Holdings. The stock trades about -0.12 of its potential returns per unit of risk. The Hilltop Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,147  in Hilltop Holdings on November 29, 2024 and sell it today you would earn a total of  37.00  from holding Hilltop Holdings or generate 1.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

First Financial Northwest  vs.  Hilltop Holdings

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 latest conflicting performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Hilltop Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hilltop Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Hilltop Holdings is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Financial and Hilltop Holdings

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

The idea behind First Financial Northwest and Hilltop Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.