Correlation Between First Northwest and First Financial

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

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

Diversification Opportunities for First Northwest and First Financial

0.47

Correlation Coefficient

First Northwest  First Financial

Very weak diversification

The 12 months correlation between First and First is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and First Financial Northwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial Northwest and First Northwest 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 Northwest Bancorp are associated (or correlated) with First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial Northwest has no effect on the direction of First Northwest i.e., First Northwest and First Financial go up and down completely randomly.

Pair Corralation between First Northwest and First Financial

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the First Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Northwest Bancorp is 1.53 times less risky than First Financial. The stock trades about -0.04 of its potential returns per unit of risk. The First Financial Northwest is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,533  in First Financial Northwest on February 6, 2024 and sell it today you would earn a total of  507.00  from holding First Financial Northwest or generate 33.07% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

First Northwest Bancorp  vs.  First Financial Northwest

First Northwest Bancorp

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Northwest Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, First Northwest is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

First Financial Northwest

Risk-Adjusted Performance

8 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial Northwest are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, First Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Northwest and First Financial

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

The idea behind First Northwest Bancorp and First Financial Northwest 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.