Correlation Between PSB Holdings and First Financial

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

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

Diversification Opportunities for PSB Holdings and First Financial

0.67

Correlation Coefficient

PSB Holdings  First Financial

Poor diversification

The 3 months correlation between PSB and First is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding PSB Holdings and First Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial and PSB Holdings 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 PSB Holdings 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 has no effect on the direction of PSB Holdings i.e., PSB Holdings and First Financial go up and down completely randomly.

Pair Corralation between PSB Holdings and First Financial

Given the investment horizon of 90 days PSB Holdings is expected to generate 6.02 times less return on investment than First Financial. But when comparing it to its historical volatility, PSB Holdings is 2.55 times less risky than First Financial. It trades about 0.04 of its potential returns per unit of risk. First Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,287  in First Financial on September 22, 2024 and sell it today you would earn a total of  374.00  from holding First Financial or generate 8.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.73%
Values	Daily Returns

PSB Holdings  vs.  First Financial

PSB Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PSB Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, PSB Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

First Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PSB Holdings and First Financial

The main advantage of trading using opposite PSB Holdings and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSB Holdings 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 PSB Holdings and First 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.