Correlation Between HE Equipment and Liberty Northwest

Can any of the company-specific risk be diversified away by investing in both HE Equipment and Liberty Northwest 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 HE Equipment and Liberty Northwest into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between HE Equipment Services and Liberty Northwest Bancorp, you can compare the effects of market volatilities on HE Equipment and Liberty Northwest 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 HE Equipment with a short position of Liberty Northwest. Check out your portfolio center. Please also check ongoing floating volatility patterns of HE Equipment and Liberty Northwest.

Diversification Opportunities for HE Equipment and Liberty Northwest

0.23

Correlation Coefficient

HE Equipment  Liberty Northwest

Modest diversification

The 3 months correlation between HEES and Liberty is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Liberty Northwest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Northwest Bancorp and HE Equipment 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 HE Equipment Services are associated (or correlated) with Liberty Northwest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Northwest Bancorp has no effect on the direction of HE Equipment i.e., HE Equipment and Liberty Northwest go up and down completely randomly.

Pair Corralation between HE Equipment and Liberty Northwest

Given the investment horizon of 90 days HE Equipment Services is expected to generate 4.69 times more return on investment than Liberty Northwest. However, HE Equipment is 4.69 times more volatile than Liberty Northwest Bancorp. It trades about 0.05 of its potential returns per unit of risk. Liberty Northwest Bancorp is currently generating about -0.02 per unit of risk. If you would invest  4,374  in HE Equipment Services on December 2, 2024 and sell it today you would earn a total of  5,216  from holding HE Equipment Services or generate 119.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.2%
Values	Daily Returns

HE Equipment Services  vs.  Liberty Northwest Bancorp

HE Equipment Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Liberty Northwest Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Liberty Northwest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Liberty Northwest is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with HE Equipment and Liberty Northwest

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

The idea behind HE Equipment Services and Liberty Northwest 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..