Correlation Between Northwest Bancshares and ESSA Bancorp
Can any of the company-specific risk be diversified away by investing in both Northwest Bancshares and ESSA 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 Northwest Bancshares and ESSA Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northwest Bancshares and ESSA Bancorp, you can compare the effects of market volatilities on Northwest Bancshares and ESSA 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 Northwest Bancshares with a short position of ESSA Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Bancshares and ESSA Bancorp.
Diversification Opportunities for Northwest Bancshares and ESSA Bancorp
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northwest and ESSA is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Bancshares and ESSA Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Bancorp and Northwest Bancshares 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 Northwest Bancshares are associated (or correlated) with ESSA Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Bancorp has no effect on the direction of Northwest Bancshares i.e., Northwest Bancshares and ESSA Bancorp go up and down completely randomly.
Pair Corralation between Northwest Bancshares and ESSA Bancorp
Given the investment horizon of 90 days Northwest Bancshares is expected to under-perform the ESSA Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Northwest Bancshares is 1.73 times less risky than ESSA Bancorp. The stock trades about -0.05 of its potential returns per unit of risk. The ESSA Bancorp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 1,705 in ESSA Bancorp on January 19, 2024 and sell it today you would lose (40.00) from holding ESSA Bancorp or give up 2.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Bancshares vs. ESSA Bancorp
Performance |
| Timeline |
| Northwest Bancshares |
| ESSA Bancorp |
Northwest Bancshares and ESSA Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Bancshares and ESSA Bancorp
The main advantage of trading using opposite Northwest Bancshares and ESSA Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Bancshares position performs unexpectedly, ESSA 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 ESSA Bancorp will offset losses from the drop in ESSA Bancorp's long position.| Northwest Bancshares vs. ST Bancorp | Northwest Bancshares vs. CrossFirst Bankshares | Northwest Bancshares vs. Enterprise Financial Services | Northwest Bancshares vs. The First Bancshares |
| ESSA Bancorp vs. Community West Bancshares | ESSA Bancorp vs. HMN Financial | ESSA Bancorp vs. First Northwest Bancorp | ESSA Bancorp vs. Cullman Bancorp |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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