Correlation Between Northeast Bancorp and Riverview Bancorp

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

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

Diversification Opportunities for Northeast Bancorp and Riverview Bancorp

0.71

Correlation Coefficient

Northeast Bancorp  Riverview Bancorp

Poor diversification

The 3 months correlation between Northeast and Riverview is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Bancorp and Riverview Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Riverview Bancorp and Northeast Bancorp 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 Northeast Bancorp are associated (or correlated) with Riverview Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Riverview Bancorp has no effect on the direction of Northeast Bancorp i.e., Northeast Bancorp and Riverview Bancorp go up and down completely randomly.

Pair Corralation between Northeast Bancorp and Riverview Bancorp

Considering the 90-day investment horizon Northeast Bancorp is expected to generate 1.72 times more return on investment than Riverview Bancorp. However, Northeast Bancorp is 1.72 times more volatile than Riverview Bancorp. It trades about 0.25 of its potential returns per unit of risk. Riverview Bancorp is currently generating about 0.25 per unit of risk. If you would invest  6,937  in Northeast Bancorp on September 2, 2024 and sell it today you would earn a total of  2,908  from holding Northeast Bancorp or generate 41.92% return on investment over 90 days.

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

Northeast Bancorp  vs.  Riverview Bancorp

Northeast Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, Northeast Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Riverview Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Riverview Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Riverview Bancorp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northeast Bancorp and Riverview Bancorp

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

The idea behind Northeast Bancorp and Riverview 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.