Correlation Between First Financial and First Bancorp

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

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

Diversification Opportunities for First Financial and First Bancorp

0.94

Correlation Coefficient

First Financial  First Bancorp

Almost no diversification

The 3 months correlation between First and First is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancorp 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 Bankshares are associated (or correlated) with First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of First Financial i.e., First Financial and First Bancorp go up and down completely randomly.

Pair Corralation between First Financial and First Bancorp

Given the investment horizon of 90 days First Financial is expected to generate 1.34 times less return on investment than First Bancorp. But when comparing it to its historical volatility, First Financial Bankshares is 1.09 times less risky than First Bancorp. It trades about 0.13 of its potential returns per unit of risk. First Bancorp is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,985  in First Bancorp on September 19, 2024 and sell it today you would earn a total of  1,750  from holding First Bancorp or generate 58.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.21%
Values	Daily Returns

First Financial Bankshares  vs.  First Bancorp

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.

First Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Financial and First Bancorp

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

The idea behind First Financial Bankshares and First 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.