Correlation Between Fifth Third and Northrim BanCorp

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

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

Diversification Opportunities for Fifth Third and Northrim BanCorp

0.88

Correlation Coefficient

Fifth Third  Northrim BanCorp

Very poor diversification

The 3 months correlation between Fifth and Northrim is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and Fifth Third 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 Fifth Third Bancorp 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 Fifth Third i.e., Fifth Third and Northrim BanCorp go up and down completely randomly.

Pair Corralation between Fifth Third and Northrim BanCorp

Given the investment horizon of 90 days Fifth Third is expected to generate 2.71 times less return on investment than Northrim BanCorp. But when comparing it to its historical volatility, Fifth Third Bancorp is 1.89 times less risky than Northrim BanCorp. It trades about 0.09 of its potential returns per unit of risk. Northrim BanCorp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,956  in Northrim BanCorp on September 14, 2024 and sell it today you would earn a total of  1,644  from holding Northrim BanCorp or generate 23.63% return on investment over 90 days.

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

Fifth Third Bancorp  vs.  Northrim BanCorp

Fifth Third Bancorp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fifth Third may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Northrim BanCorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northrim BanCorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, Northrim BanCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fifth Third and Northrim BanCorp

The main advantage of trading using opposite Fifth Third and Northrim BanCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third 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 Fifth Third Bancorp 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.