Correlation Between Orrstown Financial and First Commonwealth

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

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

Diversification Opportunities for Orrstown Financial and First Commonwealth

0.82

Correlation Coefficient

Orrstown Financial  First Commonwealth

Very poor diversification

The 3 months correlation between Orrstown and First is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Orrstown Financial Services and First Commonwealth Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Commonwealth and Orrstown 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 Orrstown Financial Services are associated (or correlated) with First Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Commonwealth has no effect on the direction of Orrstown Financial i.e., Orrstown Financial and First Commonwealth go up and down completely randomly.

Pair Corralation between Orrstown Financial and First Commonwealth

Given the investment horizon of 90 days Orrstown Financial Services is expected to under-perform the First Commonwealth. But the stock apears to be less risky and, when comparing its historical volatility, Orrstown Financial Services is 1.09 times less risky than First Commonwealth. The stock trades about -0.21 of its potential returns per unit of risk. The First Commonwealth Financial is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,677  in First Commonwealth Financial on December 28, 2024 and sell it today you would lose (128.00) from holding First Commonwealth Financial or give up 7.63% of portfolio value over 90 days.

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

Orrstown Financial Services  vs.  First Commonwealth Financial

Orrstown Financial

Risk-Adjusted Performance

Very Weak

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

First Commonwealth

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Commonwealth Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Orrstown Financial and First Commonwealth

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

The idea behind Orrstown Financial Services and First Commonwealth 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.