Correlation Between 1st Colonial and First Northern

Can any of the company-specific risk be diversified away by investing in both 1st Colonial and First Northern 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 1st Colonial and First Northern into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 1st Colonial Bancorp and First Northern Community, you can compare the effects of market volatilities on 1st Colonial and First Northern 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 1st Colonial with a short position of First Northern. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Colonial and First Northern.

Diversification Opportunities for 1st Colonial and First Northern

0.75

Correlation Coefficient

1st Colonial  First Northern

Poor diversification

The 3 months correlation between 1st and First is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding 1st Colonial Bancorp and First Northern Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Northern Community and 1st Colonial 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 1st Colonial Bancorp are associated (or correlated) with First Northern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Northern Community has no effect on the direction of 1st Colonial i.e., 1st Colonial and First Northern go up and down completely randomly.

Pair Corralation between 1st Colonial and First Northern

Given the investment horizon of 90 days 1st Colonial Bancorp is expected to under-perform the First Northern. In addition to that, 1st Colonial is 1.61 times more volatile than First Northern Community. It trades about -0.08 of its total potential returns per unit of risk. First Northern Community is currently generating about -0.08 per unit of volatility. If you would invest  1,036  in First Northern Community on September 3, 2024 and sell it today you would lose (36.00) from holding First Northern Community or give up 3.47% of portfolio value over 90 days.

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

1st Colonial Bancorp  vs.  First Northern Community

1st Colonial Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 1st Colonial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 1st Colonial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Northern Community

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Northern Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, First Northern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with 1st Colonial and First Northern

The main advantage of trading using opposite 1st Colonial and First Northern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Colonial position performs unexpectedly, First Northern 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 First Northern will offset losses from the drop in First Northern's long position.

The idea behind 1st Colonial Bancorp and First Northern Community 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.