Correlation Between Northfield Bancorp and Dime Community

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

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

Diversification Opportunities for Northfield Bancorp and Dime Community

0.85

Correlation Coefficient

Northfield Bancorp  Dime Community

Very poor diversification

The 3 months correlation between Northfield and Dime is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Northfield Bancorp and Dime Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dime Community Bancshares and Northfield 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 Northfield Bancorp are associated (or correlated) with Dime Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dime Community Bancshares has no effect on the direction of Northfield Bancorp i.e., Northfield Bancorp and Dime Community go up and down completely randomly.

Pair Corralation between Northfield Bancorp and Dime Community

Given the investment horizon of 90 days Northfield Bancorp is expected to generate 2.37 times less return on investment than Dime Community. But when comparing it to its historical volatility, Northfield Bancorp is 1.06 times less risky than Dime Community. It trades about 0.08 of its potential returns per unit of risk. Dime Community Bancshares is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,537  in Dime Community Bancshares on September 3, 2024 and sell it today you would earn a total of  1,051  from holding Dime Community Bancshares or generate 41.43% return on investment over 90 days.

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

Northfield Bancorp  vs.  Dime Community Bancshares

Northfield Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northfield Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Northfield Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Dime Community Bancshares

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dime Community Bancshares are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Dime Community displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northfield Bancorp and Dime Community

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

The idea behind Northfield Bancorp and Dime Community Bancshares 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.