Correlation Between Byline Bancorp and Northwest Bancshares

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

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

Diversification Opportunities for Byline Bancorp and Northwest Bancshares

0.89

Correlation Coefficient

Byline Bancorp  Northwest Bancshares

Very poor diversification

The 3 months correlation between Byline and Northwest is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Byline Bancorp and Northwest Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Bancshares and Byline Bancorp 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 Byline Bancorp 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 Byline Bancorp i.e., Byline Bancorp and Northwest Bancshares go up and down completely randomly.

Pair Corralation between Byline Bancorp and Northwest Bancshares

Allowing for the 90-day total investment horizon Byline Bancorp is expected to under-perform the Northwest Bancshares. In addition to that, Byline Bancorp is 1.1 times more volatile than Northwest Bancshares. It trades about -0.11 of its total potential returns per unit of risk. Northwest Bancshares is currently generating about -0.1 per unit of volatility. If you would invest  1,298  in Northwest Bancshares on December 29, 2024 and sell it today you would lose (100.00) from holding Northwest Bancshares or give up 7.7% of portfolio value over 90 days.

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

Byline Bancorp  vs.  Northwest Bancshares

Byline Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Byline Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Northwest Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northwest Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Byline Bancorp and Northwest Bancshares

The main advantage of trading using opposite Byline Bancorp and Northwest Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Byline Bancorp 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 Byline Bancorp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.