Correlation Between Washington Federal and Northwest Bancshares

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

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

Diversification Opportunities for Washington Federal and Northwest Bancshares

0.81

Correlation Coefficient

Washington Federal  Northwest Bancshares

Very poor diversification

The 3 months correlation between Washington and Northwest is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Washington Federal and Northwest Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northwest Bancshares and Washington Federal 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 Washington Federal 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 Washington Federal i.e., Washington Federal and Northwest Bancshares go up and down completely randomly.

Pair Corralation between Washington Federal and Northwest Bancshares

Given the investment horizon of 90 days Washington Federal is expected to generate 3.55 times less return on investment than Northwest Bancshares. In addition to that, Washington Federal is 1.01 times more volatile than Northwest Bancshares. It trades about 0.02 of its total potential returns per unit of risk. Northwest Bancshares is currently generating about 0.07 per unit of volatility. If you would invest  1,354  in Northwest Bancshares on August 31, 2024 and sell it today you would earn a total of  114.00  from holding Northwest Bancshares or generate 8.42% return on investment over 90 days.

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

Washington Federal  vs.  Northwest Bancshares

Washington Federal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Federal are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Washington Federal is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Northwest Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Northwest Bancshares may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Washington Federal and Northwest Bancshares

The main advantage of trading using opposite Washington Federal and Northwest Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Federal 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 Washington Federal 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.