Correlation Between Live Oak and First Financial

Can any of the company-specific risk be diversified away by investing in both Live Oak and First Financial 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 Live Oak and First Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Live Oak Bancshares and First Financial Northwest, you can compare the effects of market volatilities on Live Oak and First Financial 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 Live Oak with a short position of First Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Live Oak and First Financial.

Diversification Opportunities for Live Oak and First Financial

0.55

Correlation Coefficient

Live Oak  First Financial

Very weak diversification

The 3 months correlation between Live and First is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Live Oak Bancshares and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest and Live Oak 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 Live Oak Bancshares are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Northwest has no effect on the direction of Live Oak i.e., Live Oak and First Financial go up and down completely randomly.

Pair Corralation between Live Oak and First Financial

Considering the 90-day investment horizon Live Oak Bancshares is expected to generate 3.28 times more return on investment than First Financial. However, Live Oak is 3.28 times more volatile than First Financial Northwest. It trades about 0.03 of its potential returns per unit of risk. First Financial Northwest is currently generating about -0.14 per unit of risk. If you would invest  3,962  in Live Oak Bancshares on October 25, 2024 and sell it today you would earn a total of  114.00  from holding Live Oak Bancshares or generate 2.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Live Oak Bancshares  vs.  First Financial Northwest

Live Oak Bancshares

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Live Oak Bancshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Live Oak is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

First Financial Northwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Northwest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Live Oak and First Financial

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

The idea behind Live Oak Bancshares and First Financial Northwest 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.