Correlation Between Security Federal and Liberty Northwest

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

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

Diversification Opportunities for Security Federal and Liberty Northwest

0.36

Correlation Coefficient

Security Federal  Liberty Northwest

Weak diversification

The 3 months correlation between Security and Liberty is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Security Federal and Liberty Northwest Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Northwest Bancorp and Security Federal 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 Security Federal are associated (or correlated) with Liberty Northwest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Northwest Bancorp has no effect on the direction of Security Federal i.e., Security Federal and Liberty Northwest go up and down completely randomly.

Pair Corralation between Security Federal and Liberty Northwest

Given the investment horizon of 90 days Security Federal is expected to generate 0.84 times more return on investment than Liberty Northwest. However, Security Federal is 1.19 times less risky than Liberty Northwest. It trades about -0.19 of its potential returns per unit of risk. Liberty Northwest Bancorp is currently generating about -0.23 per unit of risk. If you would invest  2,786  in Security Federal on September 25, 2024 and sell it today you would lose (86.00) from holding Security Federal or give up 3.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Security Federal  vs.  Liberty Northwest Bancorp

Security Federal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Security Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Security Federal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Liberty Northwest Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Northwest Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Liberty Northwest is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Security Federal and Liberty Northwest

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

The idea behind Security Federal and Liberty Northwest 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.