Correlation Between First Interstate and Northrim BanCorp
Can any of the company-specific risk be diversified away by investing in both First Interstate and Northrim 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 Interstate and Northrim BanCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Interstate BancSystem and Northrim BanCorp, you can compare the effects of market volatilities on First Interstate and Northrim 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 Interstate with a short position of Northrim BanCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Interstate and Northrim BanCorp.
Diversification Opportunities for First Interstate and Northrim BanCorp
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between First and Northrim is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and First Interstate 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 Interstate BancSystem are associated (or correlated) with Northrim BanCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrim BanCorp has no effect on the direction of First Interstate i.e., First Interstate and Northrim BanCorp go up and down completely randomly.
Pair Corralation between First Interstate and Northrim BanCorp
Given the investment horizon of 90 days First Interstate is expected to generate 1.78 times less return on investment than Northrim BanCorp. But when comparing it to its historical volatility, First Interstate BancSystem is 1.19 times less risky than Northrim BanCorp. It trades about 0.08 of its potential returns per unit of risk. Northrim BanCorp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,889 in Northrim BanCorp on August 28, 2024 and sell it today you would earn a total of 3,919 from holding Northrim BanCorp or generate 80.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Interstate BancSystem vs. Northrim BanCorp
Performance |
| Timeline |
| First Interstate Ban |
| Northrim BanCorp |
First Interstate and Northrim BanCorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Interstate and Northrim BanCorp
The main advantage of trading using opposite First Interstate and Northrim BanCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Interstate position performs unexpectedly, Northrim 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 Northrim BanCorp will offset losses from the drop in Northrim BanCorp's long position.| First Interstate vs. First Financial Bankshares | First Interstate vs. Independent Bank Group | First Interstate vs. CVB Financial | First Interstate vs. Eagle Bancorp Montana |
| Northrim BanCorp vs. Peoples Bancorp | Northrim BanCorp vs. Eagle Bancorp | Northrim BanCorp vs. United Bankshares | Northrim BanCorp vs. Pacific Premier Bancorp |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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