Correlation Between Franklin Financial and First Business

Can any of the company-specific risk be diversified away by investing in both Franklin Financial and First Business 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 Franklin Financial and First Business into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Financial Services and First Business Financial, you can compare the effects of market volatilities on Franklin Financial and First Business 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 Franklin Financial with a short position of First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Financial and First Business.

Diversification Opportunities for Franklin Financial and First Business

0.8

Correlation Coefficient

Franklin Financial  First Business

Very poor diversification

The 3 months correlation between Franklin and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Financial Services and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial and Franklin 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 Franklin Financial Services are associated (or correlated) with First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Franklin Financial i.e., Franklin Financial and First Business go up and down completely randomly.

Pair Corralation between Franklin Financial and First Business

Given the investment horizon of 90 days Franklin Financial Services is expected to under-perform the First Business. But the stock apears to be less risky and, when comparing its historical volatility, Franklin Financial Services is 1.83 times less risky than First Business. The stock trades about -0.53 of its potential returns per unit of risk. The First Business Financial is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  5,012  in First Business Financial on September 29, 2024 and sell it today you would lose (425.00) from holding First Business Financial or give up 8.48% of portfolio value over 90 days.

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

Franklin Financial Services  vs.  First Business Financial

Franklin Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Franklin Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

First Business Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, First Business is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Franklin Financial and First Business

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

The idea behind Franklin Financial Services and First Business Financial 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.