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

-0.28

Correlation Coefficient

First Bancorp  Northeast Bancorp

Very good diversification

The 3 months correlation between First and Northeast is -0.28. 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 0.67 times more return on investment than Northeast Bancorp. However, First Bancorp is 1.49 times less risky than Northeast Bancorp. It trades about 0.06 of its potential returns per unit of risk. Northeast Bancorp is currently generating about -0.09 per unit of risk. If you would invest  2,540  in First Bancorp on December 4, 2024 and sell it today you would earn a total of  33.00  from holding First Bancorp or generate 1.3% return on investment over 90 days.

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

First Bancorp  vs.  Northeast Bancorp

First Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Northeast Bancorp

Risk-Adjusted Performance

Very Weak

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

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.