Correlation Between First Financial and Mega Financial

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

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

Diversification Opportunities for First Financial and Mega Financial

0.71

Correlation Coefficient

First Financial  Mega Financial

Poor diversification

The 3 months correlation between First and Mega is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Holding and Mega Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mega Financial Holding 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 Holding are associated (or correlated) with Mega Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mega Financial Holding has no effect on the direction of First Financial i.e., First Financial and Mega Financial go up and down completely randomly.

Pair Corralation between First Financial and Mega Financial

Assuming the 90 days trading horizon First Financial is expected to generate 8.35 times less return on investment than Mega Financial. In addition to that, First Financial is 1.15 times more volatile than Mega Financial Holding. It trades about 0.0 of its total potential returns per unit of risk. Mega Financial Holding is currently generating about 0.04 per unit of volatility. If you would invest  3,905  in Mega Financial Holding on August 31, 2024 and sell it today you would earn a total of  80.00  from holding Mega Financial Holding or generate 2.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

First Financial Holding  vs.  Mega Financial Holding

First Financial Holding

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days First Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Mega Financial Holding

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mega Financial Holding are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Mega Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with First Financial and Mega Financial

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

The idea behind First Financial Holding and Mega Financial Holding 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.