Correlation Between Banc Of and Northwest Bancshares

Can any of the company-specific risk be diversified away by investing in both Banc Of and Northwest Bancshares 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 Banc Of and Northwest Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Banc of California and Northwest Bancshares, you can compare the effects of market volatilities on Banc Of and Northwest Bancshares 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 Banc Of with a short position of Northwest Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banc Of and Northwest Bancshares.

Diversification Opportunities for Banc Of and Northwest Bancshares

0.73

Correlation Coefficient

Banc Of  Northwest Bancshares

Poor diversification

The 3 months correlation between Banc and Northwest is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Banc of California and Northwest Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Bancshares and Banc Of 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 Banc of California are associated (or correlated) with Northwest Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Bancshares has no effect on the direction of Banc Of i.e., Banc Of and Northwest Bancshares go up and down completely randomly.

Pair Corralation between Banc Of and Northwest Bancshares

Assuming the 90 days trading horizon Banc Of is expected to generate 1.39 times less return on investment than Northwest Bancshares. But when comparing it to its historical volatility, Banc of California is 3.52 times less risky than Northwest Bancshares. It trades about 0.17 of its potential returns per unit of risk. Northwest Bancshares is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,354  in Northwest Bancshares on September 2, 2024 and sell it today you would earn a total of  114.00  from holding Northwest Bancshares or generate 8.42% return on investment over 90 days.

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

Banc of California  vs.  Northwest Bancshares

Banc of California

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banc of California are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Banc Of may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Northwest Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Northwest Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banc Of and Northwest Bancshares

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

The idea behind Banc of California and Northwest Bancshares 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.