Correlation Between First Financial and FNCB Bancorp

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

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

Diversification Opportunities for First Financial and FNCB Bancorp

0.08

Correlation Coefficient

First Financial  FNCB Bancorp

Significant diversification

The 3 months correlation between First and FNCB is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and FNCB Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNCB 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 Northwest are associated (or correlated) with FNCB Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNCB Bancorp has no effect on the direction of First Financial i.e., First Financial and FNCB Bancorp go up and down completely randomly.

Pair Corralation between First Financial and FNCB Bancorp

If you would invest  2,250  in First Financial Northwest on September 1, 2024 and sell it today you would earn a total of  10.00  from holding First Financial Northwest or generate 0.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

First Financial Northwest  vs.  FNCB Bancorp

First Financial Northwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Northwest 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FNCB Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FNCB Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, FNCB Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Financial and FNCB Bancorp

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

The idea behind First Financial Northwest and FNCB 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.