Correlation Between Wells Fargo and First Financial

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

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

Diversification Opportunities for Wells Fargo and First Financial

0.69

Correlation Coefficient

Wells Fargo  First Financial

Poor diversification

The 3 months correlation between Wells and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and First Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Bancorp and Wells Fargo 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 Wells Fargo 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 Bancorp has no effect on the direction of Wells Fargo i.e., Wells Fargo and First Financial go up and down completely randomly.

Pair Corralation between Wells Fargo and First Financial

Considering the 90-day investment horizon Wells Fargo is expected to generate 1.2 times more return on investment than First Financial. However, Wells Fargo is 1.2 times more volatile than First Financial Bancorp. It trades about 0.04 of its potential returns per unit of risk. First Financial Bancorp is currently generating about -0.06 per unit of risk. If you would invest  7,076  in Wells Fargo on December 27, 2024 and sell it today you would earn a total of  271.00  from holding Wells Fargo or generate 3.83% return on investment over 90 days.

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

Wells Fargo  vs.  First Financial Bancorp

Wells Fargo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo 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, Wells Fargo is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Financial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, First Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Wells Fargo and First Financial

The main advantage of trading using opposite Wells Fargo and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo 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 Wells Fargo and First Financial Bancorp 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.