Correlation Between Washington Federal and First Financial

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

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

Diversification Opportunities for Washington Federal and First Financial

0.72

Correlation Coefficient

Washington Federal  First Financial

Poor diversification

The 3 months correlation between Washington and First is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Washington Federal 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 Washington Federal 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 Washington Federal 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 Washington Federal i.e., Washington Federal and First Financial go up and down completely randomly.

Pair Corralation between Washington Federal and First Financial

Given the investment horizon of 90 days Washington Federal is expected to generate 1.18 times less return on investment than First Financial. But when comparing it to its historical volatility, Washington Federal is 1.03 times less risky than First Financial. It trades about 0.03 of its potential returns per unit of risk. First Financial Bankshares is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,415  in First Financial Bankshares on August 31, 2024 and sell it today you would earn a total of  788.00  from holding First Financial Bankshares or generate 23.07% return on investment over 90 days.

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

Washington Federal  vs.  First Financial Bankshares

Washington Federal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Federal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Washington Federal 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

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bankshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, First Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Washington Federal and First Financial

The main advantage of trading using opposite Washington Federal and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Federal 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 Washington Federal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.