Correlation Between First Northwest and First Mid

Can any of the company-specific risk be diversified away by investing in both First Northwest and First Mid 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 First Mid 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 First Mid Illinois, you can compare the effects of market volatilities on First Northwest and First Mid 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 First Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Northwest and First Mid.

Diversification Opportunities for First Northwest and First Mid

0.6

Correlation Coefficient

First Northwest  First Mid

Poor diversification

The 3 months correlation between First and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and First Mid Illinois in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Mid Illinois 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 First Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Mid Illinois has no effect on the direction of First Northwest i.e., First Northwest and First Mid go up and down completely randomly.

Pair Corralation between First Northwest and First Mid

Given the investment horizon of 90 days First Northwest is expected to generate 1.93 times less return on investment than First Mid. But when comparing it to its historical volatility, First Northwest Bancorp is 1.05 times less risky than First Mid. It trades about 0.01 of its potential returns per unit of risk. First Mid Illinois is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,952  in First Mid Illinois on September 18, 2024 and sell it today you would earn a total of  99.00  from holding First Mid Illinois or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

First Northwest Bancorp  vs.  First Mid Illinois

First Northwest Bancorp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Northwest Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

First Mid Illinois

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Mid Illinois are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, First Mid is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Northwest and First Mid

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

The idea behind First Northwest Bancorp and First Mid Illinois 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.