Correlation Between First Northwest and First Business
Can any of the company-specific risk be diversified away by investing in both First Northwest and First Business 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 First Business 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 First Business Financial, you can compare the effects of market volatilities on First Northwest and First Business 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 First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Northwest and First Business.
Diversification Opportunities for First Northwest and First Business
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between First and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business 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 First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of First Northwest i.e., First Northwest and First Business go up and down completely randomly.
Pair Corralation between First Northwest and First Business
Given the investment horizon of 90 days First Northwest is expected to generate 2.71 times less return on investment than First Business. But when comparing it to its historical volatility, First Northwest Bancorp is 1.76 times less risky than First Business. It trades about 0.12 of its potential returns per unit of risk. First Business Financial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 4,417 in First Business Financial on August 24, 2024 and sell it today you would earn a total of 608.00 from holding First Business Financial or generate 13.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Northwest Bancorp vs. First Business Financial
Performance |
| Timeline |
| First Northwest Bancorp |
| First Business Financial |
First Northwest and First Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Northwest and First Business
The main advantage of trading using opposite First Northwest and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Northwest position performs unexpectedly, First Business 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 First Business will offset losses from the drop in First Business' long position.| First Northwest vs. Home Federal Bancorp | First Northwest vs. First Financial Northwest | First Northwest vs. First Capital | First Northwest vs. Community West Bancshares |
| First Business vs. Home Federal Bancorp | First Business vs. Lake Shore Bancorp | First Business vs. Old Point Financial | First Business vs. Parke 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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