Correlation Between Heritage Commerce and First Financial

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

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

Diversification Opportunities for Heritage Commerce and First Financial

0.96

Correlation Coefficient

Heritage Commerce  First Financial

Almost no diversification

The 3 months correlation between Heritage and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Commerce Corp 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 Heritage Commerce 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 Heritage Commerce Corp 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 Heritage Commerce i.e., Heritage Commerce and First Financial go up and down completely randomly.

Pair Corralation between Heritage Commerce and First Financial

Given the investment horizon of 90 days Heritage Commerce is expected to generate 1.89 times less return on investment than First Financial. But when comparing it to its historical volatility, Heritage Commerce Corp is 1.13 times less risky than First Financial. It trades about 0.07 of its potential returns per unit of risk. First Financial Bancorp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,442  in First Financial Bancorp on September 12, 2024 and sell it today you would earn a total of  489.00  from holding First Financial Bancorp or generate 20.02% return on investment over 90 days.

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

Heritage Commerce Corp  vs.  First Financial Bancorp

Heritage Commerce Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Commerce Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Heritage Commerce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

First Financial Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, First Financial exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Commerce and First Financial

The main advantage of trading using opposite Heritage Commerce and First Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage Commerce 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 Heritage Commerce Corp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..