Correlation Between First Northwest and Veritex Holdings

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

Diversification Opportunities for First Northwest and Veritex Holdings

0.54

Correlation Coefficient

First Northwest  Veritex Holdings

Very weak diversification

The 3 months correlation between First and Veritex is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding First Northwest Bancorp and Veritex Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veritex Holdings 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 Veritex Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veritex Holdings has no effect on the direction of First Northwest i.e., First Northwest and Veritex Holdings go up and down completely randomly.

Pair Corralation between First Northwest and Veritex Holdings

Given the investment horizon of 90 days First Northwest Bancorp is expected to under-perform the Veritex Holdings. But the stock apears to be less risky and, when comparing its historical volatility, First Northwest Bancorp is 1.12 times less risky than Veritex Holdings. The stock trades about -0.02 of its potential returns per unit of risk. The Veritex Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,569  in Veritex Holdings on September 24, 2024 and sell it today you would earn a total of  204.00  from holding Veritex Holdings or generate 7.94% return on investment over 90 days.

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

First Northwest Bancorp  vs.  Veritex Holdings

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Veritex Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Veritex Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Veritex Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Northwest and Veritex Holdings

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

The idea behind First Northwest Bancorp and Veritex Holdings 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.