Correlation Between Village Bank and First Financial

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

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

Diversification Opportunities for Village Bank and First Financial

0.1

Correlation Coefficient

Village Bank  First Financial

Average diversification

The 3 months correlation between Village and First is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Village Bank and 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 Village Bank 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 Village Bank and 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 Village Bank i.e., Village Bank and First Financial go up and down completely randomly.

Pair Corralation between Village Bank and First Financial

Given the investment horizon of 90 days Village Bank and is expected to under-perform the First Financial. But the stock apears to be less risky and, when comparing its historical volatility, Village Bank and is 2.31 times less risky than First Financial. The stock trades about -0.26 of its potential returns per unit of risk. The First Financial Bankshares is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,627  in First Financial Bankshares on October 24, 2024 and sell it today you would earn a total of  101.50  from holding First Financial Bankshares or generate 2.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	78.95%
Values	Daily Returns

Village Bank and  vs.  First Financial Bankshares

Village Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Village Bank and are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Village Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Financial Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bankshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, First Financial is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Village Bank and First Financial

The main advantage of trading using opposite Village Bank and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Village Bank 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 Village Bank and 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.