Correlation Between First Northwest and Great Southern

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

Diversification Opportunities for First Northwest and Great Southern

0.25

Correlation Coefficient

First Northwest  Great Southern

Modest diversification

The 3 months correlation between First and Great is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Great Southern Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Southern Bancorp 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 Great Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Southern Bancorp has no effect on the direction of First Northwest i.e., First Northwest and Great Southern go up and down completely randomly.

Pair Corralation between First Northwest and Great Southern

Given the investment horizon of 90 days First Northwest is expected to generate 64.11 times less return on investment than Great Southern. But when comparing it to its historical volatility, First Northwest Bancorp is 1.12 times less risky than Great Southern. It trades about 0.0 of its potential returns per unit of risk. Great Southern Bancorp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,824  in Great Southern Bancorp on September 2, 2024 and sell it today you would earn a total of  583.00  from holding Great Southern Bancorp or generate 10.01% return on investment over 90 days.

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

First Northwest Bancorp  vs.  Great Southern Bancorp

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.

Great Southern Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great Southern Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental drivers, Great Southern may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Northwest and Great Southern

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

The idea behind First Northwest Bancorp and Great Southern 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.