Correlation Between First Financial and Old Point

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

Diversification Opportunities for First Financial and Old Point

0.44

Correlation Coefficient

First Financial  Old Point

Very weak diversification

The 3 months correlation between First and Old is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Bankshares and Old Point Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Point Financial 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 Old Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Point Financial has no effect on the direction of First Financial i.e., First Financial and Old Point go up and down completely randomly.

Pair Corralation between First Financial and Old Point

Given the investment horizon of 90 days First Financial Bankshares is expected to generate 1.09 times more return on investment than Old Point. However, First Financial is 1.09 times more volatile than Old Point Financial. It trades about -0.06 of its potential returns per unit of risk. Old Point Financial is currently generating about -0.1 per unit of risk. If you would invest  2,991  in First Financial Bankshares on March 19, 2024 and sell it today you would lose (209.00) from holding First Financial Bankshares or give up 6.99% of portfolio value over 90 days.

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

First Financial Bankshares  vs.  Old Point Financial

First Financial Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Old Point Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Old Point Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with First Financial and Old Point

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

The idea behind First Financial Bankshares and Old Point Financial 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 Global Correlations module to find global opportunities by holding instruments from different markets.