Correlation Between Northeast Bancorp and Financial Institutions

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

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

Diversification Opportunities for Northeast Bancorp and Financial Institutions

0.72

Correlation Coefficient

Northeast Bancorp  Financial Institutions

Poor diversification

The 3 months correlation between Northeast and Financial is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Bancorp and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions and Northeast Bancorp 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 Northeast Bancorp are associated (or correlated) with Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of Northeast Bancorp i.e., Northeast Bancorp and Financial Institutions go up and down completely randomly.

Pair Corralation between Northeast Bancorp and Financial Institutions

Considering the 90-day investment horizon Northeast Bancorp is expected to generate 1.11 times more return on investment than Financial Institutions. However, Northeast Bancorp is 1.11 times more volatile than Financial Institutions. It trades about 0.01 of its potential returns per unit of risk. Financial Institutions is currently generating about -0.06 per unit of risk. If you would invest  9,106  in Northeast Bancorp on December 30, 2024 and sell it today you would earn a total of  8.00  from holding Northeast Bancorp or generate 0.09% return on investment over 90 days.

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

Northeast Bancorp  vs.  Financial Institutions

Northeast Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northeast Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Northeast Bancorp is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Financial Institutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financial Institutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Financial Institutions is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Northeast Bancorp and Financial Institutions

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

The idea behind Northeast Bancorp and Financial Institutions 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..