Correlation Between Provident Financial and Northrim BanCorp

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

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

Diversification Opportunities for Provident Financial and Northrim BanCorp

0.88

Correlation Coefficient

Provident Financial  Northrim BanCorp

Very poor diversification

The 3 months correlation between Provident and Northrim is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Provident Financial Services and Northrim BanCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrim BanCorp and Provident Financial 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 Provident Financial Services 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 Provident Financial i.e., Provident Financial and Northrim BanCorp go up and down completely randomly.

Pair Corralation between Provident Financial and Northrim BanCorp

Considering the 90-day investment horizon Provident Financial is expected to generate 1.1 times less return on investment than Northrim BanCorp. But when comparing it to its historical volatility, Provident Financial Services is 1.13 times less risky than Northrim BanCorp. It trades about 0.16 of its potential returns per unit of risk. Northrim BanCorp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,312  in Northrim BanCorp on September 5, 2024 and sell it today you would earn a total of  3,217  from holding Northrim BanCorp or generate 60.56% return on investment over 90 days.

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

Provident Financial Services  vs.  Northrim BanCorp

Provident Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent technical and fundamental indicators, Provident Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Northrim BanCorp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northrim BanCorp are ranked lower than 12 (%) 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 Provident Financial and Northrim BanCorp

The main advantage of trading using opposite Provident Financial and Northrim BanCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Financial 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 Provident Financial Services 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.