Correlation Between Liberty Northwest and Washington Business

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

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

Diversification Opportunities for Liberty Northwest and Washington Business

0.32

Correlation Coefficient

Liberty Northwest  Washington Business

Weak diversification

The 3 months correlation between Liberty and Washington is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Northwest Bancorp and Washington Business Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Business Bank and Liberty 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 Liberty Northwest Bancorp are associated (or correlated) with Washington Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Business Bank has no effect on the direction of Liberty Northwest i.e., Liberty Northwest and Washington Business go up and down completely randomly.

Pair Corralation between Liberty Northwest and Washington Business

Given the investment horizon of 90 days Liberty Northwest is expected to generate 1.57 times less return on investment than Washington Business. But when comparing it to its historical volatility, Liberty Northwest Bancorp is 1.02 times less risky than Washington Business. It trades about 0.12 of its potential returns per unit of risk. Washington Business Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,275  in Washington Business Bank on September 13, 2024 and sell it today you would earn a total of  325.00  from holding Washington Business Bank or generate 9.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	89.06%
Values	Daily Returns

Liberty Northwest Bancorp  vs.  Washington Business Bank

Liberty Northwest Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Northwest Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Liberty Northwest may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Washington Business Bank

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Washington Business Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat fragile basic indicators, Washington Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Liberty Northwest and Washington Business

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

The idea behind Liberty Northwest Bancorp and Washington Business Bank 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.