Correlation Between International Bancshares and First Financial

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

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

Diversification Opportunities for International Bancshares and First Financial

0.87

Correlation Coefficient

International Bancshares  First Financial

Very poor diversification

The 3 months correlation between International and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding International Bancshares and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest and International Bancshares 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 International Bancshares are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Northwest has no effect on the direction of International Bancshares i.e., International Bancshares and First Financial go up and down completely randomly.

Pair Corralation between International Bancshares and First Financial

Given the investment horizon of 90 days International Bancshares is expected to generate 1.23 times less return on investment than First Financial. But when comparing it to its historical volatility, International Bancshares is 1.4 times less risky than First Financial. It trades about 0.06 of its potential returns per unit of risk. First Financial Northwest is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,216  in First Financial Northwest on December 2, 2024 and sell it today you would earn a total of  914.00  from holding First Financial Northwest or generate 75.16% return on investment over 90 days.

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

International Bancshares  vs.  First Financial Northwest

International Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with International Bancshares and First Financial

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

The idea behind International Bancshares and First Financial Northwest 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.