Correlation Between First Northwest and First Community

Can any of the company-specific risk be diversified away by investing in both First Northwest and First Community 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 Community 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 Community, you can compare the effects of market volatilities on First Northwest and First Community 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 Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Northwest and First Community.

Diversification Opportunities for First Northwest and First Community

0.37

Correlation Coefficient

First Northwest  First Community

Weak diversification

The 3 months correlation between First and First is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of First Northwest i.e., First Northwest and First Community go up and down completely randomly.

Pair Corralation between First Northwest and First Community

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the First Community. In addition to that, First Northwest is 1.34 times more volatile than First Community. It trades about -0.16 of its total potential returns per unit of risk. First Community is currently generating about -0.05 per unit of volatility. If you would invest  1,795  in First Community on February 2, 2024 and sell it today you would lose (144.00) from holding First Community or give up 8.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Northwest Bancorp  vs.  First Community

First Northwest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Northwest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

First Community

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with First Northwest and First Community

The main advantage of trading using opposite First Northwest and First Community positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Northwest position performs unexpectedly, First Community 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 Community will offset losses from the drop in First Community's long position.

The idea behind First Northwest Bancorp and First Community 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.