Correlation Between Northwest Bancshares and Provident Financial
Can any of the company-specific risk be diversified away by investing in both Northwest Bancshares and Provident 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 Northwest Bancshares and Provident Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northwest Bancshares and Provident Financial Services, you can compare the effects of market volatilities on Northwest Bancshares and Provident 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 Northwest Bancshares with a short position of Provident Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Bancshares and Provident Financial.
Diversification Opportunities for Northwest Bancshares and Provident Financial
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Northwest and Provident is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Bancshares and Provident Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial and Northwest Bancshares 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 Northwest Bancshares are associated (or correlated) with Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of Northwest Bancshares i.e., Northwest Bancshares and Provident Financial go up and down completely randomly.
Pair Corralation between Northwest Bancshares and Provident Financial
Assuming the 90 days horizon Northwest Bancshares is expected to generate 1.34 times less return on investment than Provident Financial. In addition to that, Northwest Bancshares is 1.27 times more volatile than Provident Financial Services. It trades about 0.13 of its total potential returns per unit of risk. Provident Financial Services is currently generating about 0.23 per unit of volatility. If you would invest 1,591 in Provident Financial Services on September 5, 2024 and sell it today you would earn a total of 399.00 from holding Provident Financial Services or generate 25.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Bancshares vs. Provident Financial Services
Performance |
| Timeline |
| Northwest Bancshares |
| Provident Financial |
Northwest Bancshares and Provident Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Bancshares and Provident Financial
The main advantage of trading using opposite Northwest Bancshares and Provident Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Bancshares position performs unexpectedly, Provident 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 Provident Financial will offset losses from the drop in Provident Financial's long position.The idea behind Northwest Bancshares and Provident Financial Services 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.| Provident Financial vs. New York Community | Provident Financial vs. Northwest Bancshares | Provident Financial vs. Territorial 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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