Correlation Between Westamerica Bancorporation and First Financial

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

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

Diversification Opportunities for Westamerica Bancorporation and First Financial

0.33

Correlation Coefficient

Westamerica Bancorporation  First Financial

Weak diversification

The 3 months correlation between Westamerica and First is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Westamerica Bancorp. 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 Westamerica Bancorporation 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 Westamerica Bancorporation 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 Westamerica Bancorporation i.e., Westamerica Bancorporation and First Financial go up and down completely randomly.

Pair Corralation between Westamerica Bancorporation and First Financial

Given the investment horizon of 90 days Westamerica Bancorporation is expected to under-perform the First Financial. But the stock apears to be less risky and, when comparing its historical volatility, Westamerica Bancorporation is 1.05 times less risky than First Financial. The stock trades about -0.03 of its potential returns per unit of risk. The First Financial Bankshares is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,587  in First Financial Bankshares on December 31, 2024 and sell it today you would lose (6.00) from holding First Financial Bankshares or give up 0.17% of portfolio value over 90 days.

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

Westamerica Bancorp.  vs.  First Financial Bankshares

Westamerica Bancorporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westamerica Bancorporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Westamerica Bancorporation 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

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 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 Westamerica Bancorporation and First Financial

The main advantage of trading using opposite Westamerica Bancorporation and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westamerica Bancorporation 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 Westamerica Bancorporation 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .