Correlation Between First Bancorp and Northeast Bancorp

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

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

Diversification Opportunities for First Bancorp and Northeast Bancorp

0.82

Correlation Coefficient

First Bancorp  Northeast Bancorp

Very poor diversification

The 3 months correlation between First and Northeast is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Northeast Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Bancorp and First 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 First Bancorp are associated (or correlated) with Northeast Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Bancorp has no effect on the direction of First Bancorp i.e., First Bancorp and Northeast Bancorp go up and down completely randomly.

Pair Corralation between First Bancorp and Northeast Bancorp

Given the investment horizon of 90 days First Bancorp is expected to generate 0.96 times more return on investment than Northeast Bancorp. However, First Bancorp is 1.04 times less risky than Northeast Bancorp. It trades about 0.07 of its potential returns per unit of risk. Northeast Bancorp is currently generating about -0.07 per unit of risk. If you would invest  4,657  in First Bancorp on September 15, 2024 and sell it today you would earn a total of  99.00  from holding First Bancorp or generate 2.13% return on investment over 90 days.

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

First Bancorp  vs.  Northeast Bancorp

First Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Northeast Bancorp

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Bancorp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, Northeast Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Bancorp and Northeast Bancorp

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

The idea behind First Bancorp and Northeast 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.