Correlation Between First Interstate and Northrim BanCorp

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

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

Diversification Opportunities for First Interstate and Northrim BanCorp

0.69

Correlation Coefficient

First Interstate  Northrim BanCorp

Poor diversification

The 3 months correlation between First and Northrim is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and First Interstate 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 Interstate BancSystem are associated (or correlated) with Northrim BanCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrim BanCorp has no effect on the direction of First Interstate i.e., First Interstate and Northrim BanCorp go up and down completely randomly.

Pair Corralation between First Interstate and Northrim BanCorp

Given the investment horizon of 90 days First Interstate BancSystem is expected to under-perform the Northrim BanCorp. But the stock apears to be less risky and, when comparing its historical volatility, First Interstate BancSystem is 1.11 times less risky than Northrim BanCorp. The stock trades about -0.08 of its potential returns per unit of risk. The Northrim BanCorp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,776  in Northrim BanCorp on December 29, 2024 and sell it today you would lose (451.00) from holding Northrim BanCorp or give up 5.8% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  Northrim BanCorp

First Interstate Ban

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Interstate BancSystem has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Northrim BanCorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Interstate and Northrim BanCorp

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

The idea behind First Interstate BancSystem and Northrim 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .