Correlation Between First Northwest and West Bancorporation

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

Diversification Opportunities for First Northwest and West Bancorporation

0.28

Correlation Coefficient

First Northwest  West Bancorporation

Modest diversification

The 3 months correlation between First and West is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and West Bancorp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West 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 West Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Bancorporation has no effect on the direction of First Northwest i.e., First Northwest and West Bancorporation go up and down completely randomly.

Pair Corralation between First Northwest and West Bancorporation

Given the investment horizon of 90 days First Northwest Bancorp is expected to generate 0.79 times more return on investment than West Bancorporation. However, First Northwest Bancorp is 1.26 times less risky than West Bancorporation. It trades about 0.28 of its potential returns per unit of risk. West Bancorporation is currently generating about -0.1 per unit of risk. If you would invest  1,025  in First Northwest Bancorp on October 21, 2024 and sell it today you would earn a total of  75.00  from holding First Northwest Bancorp or generate 7.32% 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.  West 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.

West Bancorporation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in West Bancorporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, West Bancorporation may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Northwest and West Bancorporation

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

The idea behind First Northwest Bancorp and West 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.