Correlation Between Northeast Bancorp and KeyCorp

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

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

Diversification Opportunities for Northeast Bancorp and KeyCorp

0.74

Correlation Coefficient

Northeast Bancorp  KeyCorp

Poor diversification

The 3 months correlation between Northeast and KeyCorp is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Bancorp and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of Northeast Bancorp i.e., Northeast Bancorp and KeyCorp go up and down completely randomly.

Pair Corralation between Northeast Bancorp and KeyCorp

Considering the 90-day investment horizon Northeast Bancorp is expected to generate 0.97 times more return on investment than KeyCorp. However, Northeast Bancorp is 1.04 times less risky than KeyCorp. It trades about 0.01 of its potential returns per unit of risk. KeyCorp is currently generating about -0.05 per unit of risk. If you would invest  9,106  in Northeast Bancorp on December 29, 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.  KeyCorp

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.

KeyCorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days KeyCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, KeyCorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northeast Bancorp and KeyCorp

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

The idea behind Northeast Bancorp and KeyCorp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.