Correlation Between Northrim BanCorp and Provident Financial

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

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

Diversification Opportunities for Northrim BanCorp and Provident Financial

0.88

Correlation Coefficient

Northrim BanCorp  Provident Financial

Very poor diversification

The 3 months correlation between Northrim and Provident is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Northrim BanCorp and Provident Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial and Northrim 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 Northrim BanCorp are associated (or correlated) with Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of Northrim BanCorp i.e., Northrim BanCorp and Provident Financial go up and down completely randomly.

Pair Corralation between Northrim BanCorp and Provident Financial

Given the investment horizon of 90 days Northrim BanCorp is expected to generate 1.16 times more return on investment than Provident Financial. However, Northrim BanCorp is 1.16 times more volatile than Provident Financial Services. It trades about 0.14 of its potential returns per unit of risk. Provident Financial Services is currently generating about 0.09 per unit of risk. If you would invest  6,728  in Northrim BanCorp on September 2, 2024 and sell it today you would earn a total of  1,779  from holding Northrim BanCorp or generate 26.44% return on investment over 90 days.

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

Northrim BanCorp  vs.  Provident Financial Services

Northrim BanCorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northrim BanCorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Northrim BanCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Provident Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Provident Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northrim BanCorp and Provident Financial

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

The idea behind Northrim BanCorp and Provident Financial Services 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.