Correlation Between Diamond Hill and Northrim BanCorp

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

By analyzing existing cross correlation between Diamond Hill Investment and Northrim BanCorp, you can compare the effects of market volatilities on Diamond Hill and Northrim BanCorp 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 Diamond Hill with a short position of Northrim BanCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Northrim BanCorp.

Diversification Opportunities for Diamond Hill and Northrim BanCorp

0.81

Correlation Coefficient

Diamond Hill  Northrim BanCorp

Very poor diversification

The 3 months correlation between Diamond and Northrim is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and Diamond Hill 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 Diamond Hill Investment are associated (or correlated) with Northrim BanCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrim BanCorp has no effect on the direction of Diamond Hill i.e., Diamond Hill and Northrim BanCorp go up and down completely randomly.

Pair Corralation between Diamond Hill and Northrim BanCorp

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Northrim BanCorp. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Hill Investment is 1.77 times less risky than Northrim BanCorp. The stock trades about -0.06 of its potential returns per unit of risk. The Northrim BanCorp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,180  in Northrim BanCorp on September 19, 2024 and sell it today you would earn a total of  1,170  from holding Northrim BanCorp or generate 16.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Diamond Hill Investment  vs.  Northrim BanCorp

Diamond Hill Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Northrim BanCorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northrim BanCorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Northrim BanCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Hill and Northrim BanCorp

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

The idea behind Diamond Hill Investment and Northrim 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.