Correlation Between Visa and Northrim BanCorp
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and Northrim BanCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and Northrim BanCorp, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Northrim BanCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Northrim BanCorp.
Diversification Opportunities for Visa and Northrim BanCorp
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Visa and Northrim is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and Visa 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 Visa Class A 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 Visa i.e., Visa and Northrim BanCorp go up and down completely randomly.
Pair Corralation between Visa and Northrim BanCorp
Taking into account the 90-day investment horizon Visa is expected to generate 1.7 times less return on investment than Northrim BanCorp. But when comparing it to its historical volatility, Visa Class A is 2.3 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 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,025 in Northrim BanCorp on August 24, 2024 and sell it today you would earn a total of 3,825 from holding Northrim BanCorp or generate 76.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Northrim BanCorp
Performance |
| Timeline |
| Visa Class A |
| Northrim BanCorp |
Visa and Northrim BanCorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Northrim BanCorp
The main advantage of trading using opposite Visa and Northrim BanCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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