Correlation Between First Financial and Middlefield Banc

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

Diversification Opportunities for First Financial and Middlefield Banc

0.29

Correlation Coefficient

First Financial  Middlefield Banc

Modest diversification

The 3 months correlation between First and Middlefield is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Middlefield Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlefield Banc 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 Middlefield Banc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlefield Banc has no effect on the direction of First Financial i.e., First Financial and Middlefield Banc go up and down completely randomly.

Pair Corralation between First Financial and Middlefield Banc

Given the investment horizon of 90 days First Financial Northwest is expected to generate 0.83 times more return on investment than Middlefield Banc. However, First Financial Northwest is 1.2 times less risky than Middlefield Banc. It trades about 0.05 of its potential returns per unit of risk. Middlefield Banc is currently generating about 0.01 per unit of risk. If you would invest  2,146  in First Financial Northwest on December 27, 2024 and sell it today you would earn a total of  122.00  from holding First Financial Northwest or generate 5.68% 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.  Middlefield Banc

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

Middlefield Banc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Middlefield Banc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Middlefield Banc is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with First Financial and Middlefield Banc

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

The idea behind First Financial Northwest and Middlefield Banc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.