Correlation Between Liberty Northwest and Village Bank

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

Diversification Opportunities for Liberty Northwest and Village Bank

0.8

Correlation Coefficient

Liberty Northwest  Village Bank

Very poor diversification

The 3 months correlation between Liberty and Village is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Liberty 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 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 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 Liberty Northwest i.e., Liberty Northwest and Village Bank go up and down completely randomly.

Pair Corralation between Liberty Northwest and Village Bank

Given the investment horizon of 90 days Liberty Northwest is expected to generate 9.69 times less return on investment than Village Bank. But when comparing it to its historical volatility, Liberty Northwest Bancorp is 7.12 times less risky than Village Bank. It trades about 0.12 of its potential returns per unit of risk. Village Bank and is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,040  in Village Bank and on September 13, 2024 and sell it today you would earn a total of  2,723  from holding Village Bank and or generate 54.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	75.0%
Values	Daily Returns

Liberty Northwest Bancorp  vs.  Village Bank and

Liberty Northwest Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Northwest Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Liberty Northwest may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Village Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Village Bank and are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Village Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Liberty Northwest and Village Bank

The main advantage of trading using opposite Liberty Northwest and Village Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty 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 Liberty 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.