Correlation Between Northrim BanCorp and Diamond Hill

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

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

Diversification Opportunities for Northrim BanCorp and Diamond Hill

0.81

Correlation Coefficient

Northrim BanCorp  Diamond Hill

Very poor diversification

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

Pair Corralation between Northrim BanCorp and Diamond Hill

Given the investment horizon of 90 days Northrim BanCorp is expected to generate 1.77 times more return on investment than Diamond Hill. However, Northrim BanCorp is 1.77 times more volatile than Diamond Hill Investment. It trades about 0.09 of its potential returns per unit of risk. Diamond Hill Investment is currently generating about -0.06 per unit of risk. 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

Northrim BanCorp  vs.  Diamond Hill Investment

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.

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.

Pair Trading with Northrim BanCorp and Diamond Hill

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

The idea behind Northrim BanCorp and Diamond Hill Investment 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.