Correlation Between First Financial and Shinhan Financial

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

Diversification Opportunities for First Financial and Shinhan Financial

0.77

Correlation Coefficient

First Financial  Shinhan Financial

Poor diversification

The 3 months correlation between First and Shinhan is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Shinhan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinhan 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 Shinhan Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinhan Financial has no effect on the direction of First Financial i.e., First Financial and Shinhan Financial go up and down completely randomly.

Pair Corralation between First Financial and Shinhan Financial

Given the investment horizon of 90 days First Financial Northwest is expected to generate 0.61 times more return on investment than Shinhan Financial. However, First Financial Northwest is 1.64 times less risky than Shinhan Financial. It trades about -0.11 of its potential returns per unit of risk. Shinhan Financial Group is currently generating about -0.18 per unit of risk. If you would invest  2,260  in First Financial Northwest on November 29, 2024 and sell it today you would lose (134.00) from holding First Financial Northwest or give up 5.93% of portfolio value over 90 days.

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

First Financial Northwest  vs.  Shinhan Financial Group

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 fairly stable basic indicators, First Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Shinhan Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First Financial and Shinhan Financial

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

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