Correlation Between First Northwest and Commerzbank

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

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

Diversification Opportunities for First Northwest and Commerzbank

-0.55

Correlation Coefficient

First Northwest  Commerzbank

Excellent diversification

The 3 months correlation between First and Commerzbank is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Commerzbank AG PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank AG PK and First Northwest 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 Northwest Bancorp are associated (or correlated) with Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG PK has no effect on the direction of First Northwest i.e., First Northwest and Commerzbank go up and down completely randomly.

Pair Corralation between First Northwest and Commerzbank

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Commerzbank. But the stock apears to be less risky and, when comparing its historical volatility, First Northwest Bancorp is 1.06 times less risky than Commerzbank. The stock trades about -0.52 of its potential returns per unit of risk. The Commerzbank AG PK is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,529  in Commerzbank AG PK on September 25, 2024 and sell it today you would earn a total of  55.00  from holding Commerzbank AG PK or generate 3.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

First Northwest Bancorp  vs.  Commerzbank AG PK

First Northwest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Commerzbank AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commerzbank AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with First Northwest and Commerzbank

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

The idea behind First Northwest Bancorp and Commerzbank AG PK 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.