Correlation Between First Northwest and Home Federal

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

Diversification Opportunities for First Northwest and Home Federal

0.42

Correlation Coefficient

First Northwest  Home Federal

Very weak diversification

The 3 months correlation between First and Home is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Home Federal Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Federal Bancorp 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 Home Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Federal Bancorp has no effect on the direction of First Northwest i.e., First Northwest and Home Federal go up and down completely randomly.

Pair Corralation between First Northwest and Home Federal

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Home Federal. In addition to that, First Northwest is 2.25 times more volatile than Home Federal Bancorp. It trades about -0.47 of its total potential returns per unit of risk. Home Federal Bancorp is currently generating about -0.13 per unit of volatility. If you would invest  1,222  in Home Federal Bancorp on February 1, 2024 and sell it today you would lose (62.00) from holding Home Federal Bancorp or give up 5.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

First Northwest Bancorp  vs.  Home Federal Bancorp

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.

Home Federal Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home Federal 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 fundamental drivers remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with First Northwest and Home Federal

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

The idea behind First Northwest Bancorp and Home Federal Bancorp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.