Correlation Between Truist Financial and Northwest Bancshares

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

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

Diversification Opportunities for Truist Financial and Northwest Bancshares

-0.15

Correlation Coefficient

Truist Financial  Northwest Bancshares

Good diversification

The 3 months correlation between Truist and Northwest is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and Northwest Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Bancshares and Truist Financial 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 Truist Financial are associated (or correlated) with Northwest Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northwest Bancshares has no effect on the direction of Truist Financial i.e., Truist Financial and Northwest Bancshares go up and down completely randomly.

Pair Corralation between Truist Financial and Northwest Bancshares

Assuming the 90 days trading horizon Truist Financial is expected to generate 0.75 times more return on investment than Northwest Bancshares. However, Truist Financial is 1.33 times less risky than Northwest Bancshares. It trades about 0.07 of its potential returns per unit of risk. Northwest Bancshares is currently generating about -0.09 per unit of risk. If you would invest  2,078  in Truist Financial on December 30, 2024 and sell it today you would earn a total of  77.00  from holding Truist Financial or generate 3.71% return on investment over 90 days.

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

Truist Financial  vs.  Northwest Bancshares

Truist Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Truist Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Northwest Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northwest Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Truist Financial and Northwest Bancshares

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

The idea behind Truist Financial and Northwest 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.