Correlation Between First Northwest and Home Bancorp

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

Diversification Opportunities for First Northwest and Home Bancorp

0.01

Correlation Coefficient

First Northwest  Home Bancorp

Significant diversification

The 3 months correlation between First and Home is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home 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 Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of First Northwest i.e., First Northwest and Home Bancorp go up and down completely randomly.

Pair Corralation between First Northwest and Home Bancorp

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Home Bancorp. In addition to that, First Northwest is 1.06 times more volatile than Home Bancorp. It trades about 0.0 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.14 per unit of volatility. If you would invest  4,256  in Home Bancorp on August 31, 2024 and sell it today you would earn a total of  822.00  from holding Home Bancorp or generate 19.31% return on investment over 90 days.

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

First Northwest Bancorp  vs.  Home 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.

Home Bancorp

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Northwest and Home Bancorp

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

The idea behind First Northwest Bancorp and Home 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.