Correlation Between Heritage Financial and First Northwest

Can any of the company-specific risk be diversified away by investing in both Heritage 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 Heritage 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 Heritage Financial and First Northwest Bancorp, you can compare the effects of market volatilities on Heritage 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 Heritage Financial with a short position of First Northwest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Financial and First Northwest.

Diversification Opportunities for Heritage Financial and First Northwest

0.18

Correlation Coefficient

Heritage Financial  First Northwest

Average diversification

The 3 months correlation between Heritage and First is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial 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 Heritage 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 Heritage Financial 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 Heritage Financial i.e., Heritage Financial and First Northwest go up and down completely randomly.

Pair Corralation between Heritage Financial and First Northwest

Given the investment horizon of 90 days Heritage Financial is expected to generate 0.52 times more return on investment than First Northwest. However, Heritage Financial is 1.91 times less risky than First Northwest. It trades about 0.16 of its potential returns per unit of risk. First Northwest Bancorp is currently generating about 0.06 per unit of risk. If you would invest  1,790  in Heritage Financial on February 21, 2024 and sell it today you would earn a total of  90.00  from holding Heritage Financial or generate 5.03% return on investment over 90 days.

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

Heritage Financial  vs.  First Northwest Bancorp

Heritage Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Heritage Financial 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 fragile 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 Heritage Financial and First Northwest

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

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .