Correlation Between Affinity Bancshares and Coastal Financial

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

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

Diversification Opportunities for Affinity Bancshares and Coastal Financial

0.07

Correlation Coefficient

Affinity Bancshares  Coastal Financial

Significant diversification

The 3 months correlation between Affinity and Coastal is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Affinity Bancshares and Coastal Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coastal Financial Corp and Affinity 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 Affinity Bancshares are associated (or correlated) with Coastal Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coastal Financial Corp has no effect on the direction of Affinity Bancshares i.e., Affinity Bancshares and Coastal Financial go up and down completely randomly.

Pair Corralation between Affinity Bancshares and Coastal Financial

Given the investment horizon of 90 days Affinity Bancshares is expected to generate 24.02 times less return on investment than Coastal Financial. But when comparing it to its historical volatility, Affinity Bancshares is 4.18 times less risky than Coastal Financial. It trades about 0.04 of its potential returns per unit of risk. Coastal Financial Corp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  5,265  in Coastal Financial Corp on September 3, 2024 and sell it today you would earn a total of  2,390  from holding Coastal Financial Corp or generate 45.39% return on investment over 90 days.

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

Affinity Bancshares  vs.  Coastal Financial Corp

Affinity Bancshares

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Affinity Bancshares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Affinity Bancshares is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Coastal Financial Corp

Risk-Adjusted Performance

19 of 100

Solid

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

Pair Trading with Affinity Bancshares and Coastal Financial

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

The idea behind Affinity Bancshares and Coastal Financial Corp 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.