Correlation Between First Financial and MF Bancorp

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

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

Diversification Opportunities for First Financial and MF Bancorp

0.46

Correlation Coefficient

First Financial  MF Bancorp

Very weak diversification

The 3 months correlation between First and MFBP is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding First Financial and MF Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MF 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 are associated (or correlated) with MF Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MF Bancorp has no effect on the direction of First Financial i.e., First Financial and MF Bancorp go up and down completely randomly.

Pair Corralation between First Financial and MF Bancorp

Given the investment horizon of 90 days First Financial is expected to generate 1.33 times more return on investment than MF Bancorp. However, First Financial is 1.33 times more volatile than MF Bancorp. It trades about 0.08 of its potential returns per unit of risk. MF Bancorp is currently generating about 0.05 per unit of risk. If you would invest  4,272  in First Financial on September 27, 2024 and sell it today you would earn a total of  438.00  from holding First Financial or generate 10.25% return on investment over 90 days.

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

First Financial  vs.  MF Bancorp

First Financial

Risk-Adjusted Performance

5 of 100

Modest

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

MF Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MF Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, MF Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with First Financial and MF Bancorp

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

The idea behind First Financial and MF 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.