Correlation Between First Financial and Colony Bankcorp

Can any of the company-specific risk be diversified away by investing in both First Financial and Colony Bankcorp 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 Colony Bankcorp 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 Colony Bankcorp, you can compare the effects of market volatilities on First Financial and Colony Bankcorp 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 Colony Bankcorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Financial and Colony Bankcorp.

Diversification Opportunities for First Financial and Colony Bankcorp

0.86

Correlation Coefficient

First Financial  Colony Bankcorp

Very poor diversification

The 3 months correlation between First and Colony is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest and Colony Bankcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colony Bankcorp 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 Colony Bankcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colony Bankcorp has no effect on the direction of First Financial i.e., First Financial and Colony Bankcorp go up and down completely randomly.

Pair Corralation between First Financial and Colony Bankcorp

Given the investment horizon of 90 days First Financial is expected to generate 2.81 times less return on investment than Colony Bankcorp. But when comparing it to its historical volatility, First Financial Northwest is 1.53 times less risky than Colony Bankcorp. It trades about 0.06 of its potential returns per unit of risk. Colony Bankcorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,109  in Colony Bankcorp on March 4, 2024 and sell it today you would earn a total of  99.00  from holding Colony Bankcorp or generate 8.93% return on investment over 90 days.

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

First Financial Northwest  vs.  Colony Bankcorp

First Financial Northwest

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Northwest are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Colony Bankcorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Colony Bankcorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Colony Bankcorp may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with First Financial and Colony Bankcorp

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

The idea behind First Financial Northwest and Colony Bankcorp 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.