Correlation Between KeyCorp and First Financial

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

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

Diversification Opportunities for KeyCorp and First Financial

0.91

Correlation Coefficient

KeyCorp  First Financial

Almost no diversification

The 3 months correlation between KeyCorp and First is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding KeyCorp and First Financial Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bank and KeyCorp 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 KeyCorp 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 Bank has no effect on the direction of KeyCorp i.e., KeyCorp and First Financial go up and down completely randomly.

Pair Corralation between KeyCorp and First Financial

Assuming the 90 days trading horizon KeyCorp is expected to generate 0.73 times more return on investment than First Financial. However, KeyCorp is 1.36 times less risky than First Financial. It trades about -0.08 of its potential returns per unit of risk. First Financial Bankshares is currently generating about -0.1 per unit of risk. If you would invest  2,402  in KeyCorp on November 29, 2024 and sell it today you would lose (152.00) from holding KeyCorp or give up 6.33% of portfolio value over 90 days.

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

KeyCorp  vs.  First Financial Bankshares

KeyCorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days KeyCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest sluggish performance, the Preferred Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

First Financial Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Financial Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with KeyCorp and First Financial

The main advantage of trading using opposite KeyCorp and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KeyCorp 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 KeyCorp and First Financial Bankshares 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.