Correlation Between First Foundation and Bank of East Asia Limited

Can any of the company-specific risk be diversified away by investing in both First Foundation and Bank of East Asia Limited 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 Foundation and Bank of East Asia Limited into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Foundation and Bank of East, you can compare the effects of market volatilities on First Foundation and Bank of East Asia Limited 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 Foundation with a short position of Bank of East Asia Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Foundation and Bank of East Asia Limited.

Diversification Opportunities for First Foundation and Bank of East Asia Limited

-0.73

Correlation Coefficient

First Foundation  Bank of East Asia Limited

Pay attention - limited upside

The 3 months correlation between First and Bank is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding First Foundation and Bank of East in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of East Asia Limited and First Foundation 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 Foundation are associated (or correlated) with Bank of East Asia Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of East Asia Limited has no effect on the direction of First Foundation i.e., First Foundation and Bank of East Asia Limited go up and down completely randomly.

Pair Corralation between First Foundation and Bank of East Asia Limited

Given the investment horizon of 90 days First Foundation is expected to under-perform the Bank of East Asia Limited. In addition to that, First Foundation is 1.3 times more volatile than Bank of East. It trades about -0.09 of its total potential returns per unit of risk. Bank of East is currently generating about 0.06 per unit of volatility. If you would invest  124.00  in Bank of East on December 28, 2024 and sell it today you would earn a total of  9.00  from holding Bank of East or generate 7.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.67%
Values	Daily Returns

First Foundation  vs.  Bank of East

First Foundation

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Foundation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Bank of East Asia Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of East are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bank of East Asia Limited may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Foundation and Bank of East Asia Limited

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

The idea behind First Foundation and Bank of East 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.