Correlation Between Financial Institutions and Northeast Bancorp

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

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

Diversification Opportunities for Financial Institutions and Northeast Bancorp

0.63

Correlation Coefficient

Financial Institutions  Northeast Bancorp

Poor diversification

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

Pair Corralation between Financial Institutions and Northeast Bancorp

Given the investment horizon of 90 days Financial Institutions is expected to generate 1.46 times less return on investment than Northeast Bancorp. In addition to that, Financial Institutions is 1.17 times more volatile than Northeast Bancorp. It trades about 0.08 of its total potential returns per unit of risk. Northeast Bancorp is currently generating about 0.13 per unit of volatility. If you would invest  3,640  in Northeast Bancorp on August 31, 2024 and sell it today you would earn a total of  6,204  from holding Northeast Bancorp or generate 170.44% return on investment over 90 days.

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

Financial Institutions  vs.  Northeast Bancorp

Financial Institutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Institutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Financial Institutions may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Northeast Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, Northeast Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial Institutions and Northeast Bancorp

The main advantage of trading using opposite Financial Institutions and Northeast Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions 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 Financial Institutions 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.