Correlation Between First Financial and First Northwest

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

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

Diversification Opportunities for First Financial and First Northwest

0.48

Correlation Coefficient

First Financial  First Northwest

Very weak diversification

The 3 months correlation between First and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding First Financial Northwest 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 First 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 First Financial Northwest 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 First Financial i.e., First Financial and First Northwest go up and down completely randomly.

Pair Corralation between First Financial and First Northwest

Given the investment horizon of 90 days First Financial Northwest is expected to generate 0.1 times more return on investment than First Northwest. However, First Financial Northwest is 10.16 times less risky than First Northwest. It trades about -0.04 of its potential returns per unit of risk. First Northwest Bancorp is currently generating about -0.36 per unit of risk. If you would invest  2,048  in First Financial Northwest on February 6, 2024 and sell it today you would lose (8.00) from holding First Financial Northwest or give up 0.39% of portfolio value over 90 days.

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

First Financial Northwest  vs.  First Northwest Bancorp

First Financial Northwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Financial Northwest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, First Financial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated 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 conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First Financial and First Northwest

The main advantage of trading using opposite First Financial and First Northwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Financial 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 First Financial Northwest 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..