Correlation Between First Financial and JD Bancshares

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

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

Diversification Opportunities for First Financial and JD Bancshares

0.78

Correlation Coefficient

First Financial  JD Bancshares

Poor diversification

The 3 months correlation between First and JDVB is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding First Financial and JD Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Bancshares and First 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 First Financial are associated (or correlated) with JD Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Bancshares has no effect on the direction of First Financial i.e., First Financial and JD Bancshares go up and down completely randomly.

Pair Corralation between First Financial and JD Bancshares

Given the investment horizon of 90 days First Financial is expected to generate 1.68 times less return on investment than JD Bancshares. But when comparing it to its historical volatility, First Financial is 2.26 times less risky than JD Bancshares. It trades about 0.02 of its potential returns per unit of risk. JD Bancshares is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,773  in JD Bancshares on September 29, 2024 and sell it today you would lose (323.00) from holding JD Bancshares or give up 11.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.18%
Values	Daily Returns

First Financial  vs.  JD Bancshares

First Financial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 4 (%) 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.

JD Bancshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JD Bancshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JD Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Financial and JD Bancshares

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

The idea behind First Financial and JD Bancshares 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.