Correlation Between First Northwest and Axos Financial
Can any of the company-specific risk be diversified away by investing in both First Northwest and Axos 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 First Northwest and Axos Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Northwest Bancorp and Axos Financial, you can compare the effects of market volatilities on First Northwest and Axos 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 First Northwest with a short position of Axos Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Northwest and Axos Financial.
Diversification Opportunities for First Northwest and Axos Financial
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between First and Axos is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Axos Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axos Financial and First Northwest 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 Northwest Bancorp are associated (or correlated) with Axos Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axos Financial has no effect on the direction of First Northwest i.e., First Northwest and Axos Financial go up and down completely randomly.
Pair Corralation between First Northwest and Axos Financial
Given the investment horizon of 90 days First Northwest is expected to generate 1.77 times less return on investment than Axos Financial. But when comparing it to its historical volatility, First Northwest Bancorp is 2.41 times less risky than Axos Financial. It trades about 0.32 of its potential returns per unit of risk. Axos Financial is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 6,703 in Axos Financial on August 29, 2024 and sell it today you would earn a total of 1,727 from holding Axos Financial or generate 25.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Northwest Bancorp vs. Axos Financial
Performance |
| Timeline |
| First Northwest Bancorp |
| Axos Financial |
First Northwest and Axos Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Northwest and Axos Financial
The main advantage of trading using opposite First Northwest and Axos Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Northwest position performs unexpectedly, Axos 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 Axos Financial will offset losses from the drop in Axos Financial's long position.The idea behind First Northwest Bancorp and Axos 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.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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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