Correlation Between First Northwest and Village Bank

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

Diversification Opportunities for First Northwest and Village Bank

-0.6

Correlation Coefficient

First Northwest  Village Bank

Excellent diversification

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

Pair Corralation between First Northwest and Village Bank

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Village Bank. But the stock apears to be less risky and, when comparing its historical volatility, First Northwest Bancorp is 1.67 times less risky than Village Bank. The stock trades about -0.42 of its potential returns per unit of risk. The Village Bank and is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  7,773  in Village Bank and on October 13, 2024 and sell it today you would earn a total of  67.00  from holding Village Bank and or generate 0.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	60.0%
Values	Daily Returns

First Northwest Bancorp  vs.  Village Bank and

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.

Village Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Village Bank and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Village Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with First Northwest and Village Bank

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

The idea behind First Northwest Bancorp and Village Bank and 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.

Check out your portfolio center.

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.