Correlation Between Western New and First Northwest

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

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

Diversification Opportunities for Western New and First Northwest

0.44

Correlation Coefficient

Western New  First Northwest

Very weak diversification

The 3 months correlation between Western and First is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Western New England and First Northwest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Northwest Bancorp and Western New 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 Western New England are associated (or correlated) with First Northwest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Northwest Bancorp has no effect on the direction of Western New i.e., Western New and First Northwest go up and down completely randomly.

Pair Corralation between Western New and First Northwest

Given the investment horizon of 90 days Western New England is expected to generate 0.96 times more return on investment than First Northwest. However, Western New England is 1.04 times less risky than First Northwest. It trades about 0.01 of its potential returns per unit of risk. First Northwest Bancorp is currently generating about -0.03 per unit of risk. If you would invest  880.00  in Western New England on October 13, 2024 and sell it today you would lose (24.00) from holding Western New England or give up 2.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Western New England  vs.  First Northwest Bancorp

Western New England

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Northwest Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Northwest Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Northwest is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western New and First Northwest

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

The idea behind Western New England and First Northwest Bancorp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.