Correlation Between Eagle Bancorp and Northwest Bancshares

Can any of the company-specific risk be diversified away by investing in both Eagle 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 Eagle 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 Eagle Bancorp Montana and Northwest Bancshares, you can compare the effects of market volatilities on Eagle 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 Eagle Bancorp with a short position of Northwest Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Bancorp and Northwest Bancshares.

Diversification Opportunities for Eagle Bancorp and Northwest Bancshares

0.63

Correlation Coefficient

Eagle Bancorp  Northwest Bancshares

Poor diversification

The 3 months correlation between Eagle and Northwest is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana and Northwest Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Bancshares and Eagle 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 Eagle Bancorp Montana 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 Eagle Bancorp i.e., Eagle Bancorp and Northwest Bancshares go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Northwest Bancshares

Given the investment horizon of 90 days Eagle Bancorp Montana is expected to generate 0.5 times more return on investment than Northwest Bancshares. However, Eagle Bancorp Montana is 2.01 times less risky than Northwest Bancshares. It trades about 0.23 of its potential returns per unit of risk. Northwest Bancshares is currently generating about 0.07 per unit of risk. If you would invest  1,486  in Eagle Bancorp Montana on August 31, 2024 and sell it today you would earn a total of  254.00  from holding Eagle Bancorp Montana or generate 17.09% return on investment over 90 days.

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

Eagle Bancorp Montana  vs.  Northwest Bancshares

Eagle Bancorp Montana

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 December 2024.

Pair Trading with Eagle Bancorp and Northwest Bancshares

The main advantage of trading using opposite Eagle Bancorp and Northwest Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle 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 Eagle Bancorp Montana 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.