Correlation Between First Northwest and Westamerica Bancorporation

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

Diversification Opportunities for First Northwest and Westamerica Bancorporation

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between First and Westamerica is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Westamerica Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westamerica Bancorporation 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 Westamerica Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westamerica Bancorporation has no effect on the direction of First Northwest i.e., First Northwest and Westamerica Bancorporation go up and down completely randomly.

Pair Corralation between First Northwest and Westamerica Bancorporation

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Westamerica Bancorporation. In addition to that, First Northwest is 1.05 times more volatile than Westamerica Bancorporation. It trades about -0.01 of its total potential returns per unit of risk. Westamerica Bancorporation is currently generating about 0.04 per unit of volatility. If you would invest  4,623  in Westamerica Bancorporation on September 24, 2024 and sell it today you would earn a total of  550.00  from holding Westamerica Bancorporation or generate 11.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

First Northwest Bancorp  vs.  Westamerica Bancorp.

 Performance 
       Timeline  
First Northwest Bancorp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest stock price disturbance, may contribute to short-term losses for the investors.
Westamerica Bancorporation 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Westamerica Bancorporation is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Northwest and Westamerica Bancorporation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with First Northwest and Westamerica Bancorporation

The main advantage of trading using opposite First Northwest and Westamerica Bancorporation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Northwest position performs unexpectedly, Westamerica Bancorporation 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 Westamerica Bancorporation will offset losses from the drop in Westamerica Bancorporation's long position.
The idea behind First Northwest Bancorp and Westamerica Bancorporation 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.

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