Correlation Between Liberty Northwest and Farmers Bank

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

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

Diversification Opportunities for Liberty Northwest and Farmers Bank

0.28

Correlation Coefficient

Liberty Northwest  Farmers Bank

Modest diversification

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

Pair Corralation between Liberty Northwest and Farmers Bank

Given the investment horizon of 90 days Liberty Northwest is expected to generate 5.61 times less return on investment than Farmers Bank. In addition to that, Liberty Northwest is 1.07 times more volatile than The Farmers Bank. It trades about 0.01 of its total potential returns per unit of risk. The Farmers Bank is currently generating about 0.05 per unit of volatility. If you would invest  2,272  in The Farmers Bank on December 11, 2024 and sell it today you would earn a total of  78.00  from holding The Farmers Bank or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.55%
Values	Daily Returns

Liberty Northwest Bancorp  vs.  The Farmers Bank

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Farmers Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Farmers Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Farmers Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Liberty Northwest and Farmers Bank

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

The idea behind Liberty Northwest Bancorp and The Farmers Bank 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.