Correlation Between Bankwell Financial and BancFirst

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

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

Diversification Opportunities for Bankwell Financial and BancFirst

0.89

Correlation Coefficient

Bankwell Financial  BancFirst

Very poor diversification

The 3 months correlation between Bankwell and BancFirst is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and BancFirst in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BancFirst and Bankwell 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 Bankwell Financial Group are associated (or correlated) with BancFirst. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BancFirst has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and BancFirst go up and down completely randomly.

Pair Corralation between Bankwell Financial and BancFirst

Given the investment horizon of 90 days Bankwell Financial is expected to generate 1.66 times less return on investment than BancFirst. But when comparing it to its historical volatility, Bankwell Financial Group is 1.09 times less risky than BancFirst. It trades about 0.08 of its potential returns per unit of risk. BancFirst is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,708  in BancFirst on September 18, 2024 and sell it today you would earn a total of  2,019  from holding BancFirst or generate 18.86% return on investment over 90 days.

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

Bankwell Financial Group  vs.  BancFirst

Bankwell Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Bankwell Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BancFirst

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BancFirst are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, BancFirst reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bankwell Financial and BancFirst

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

The idea behind Bankwell Financial Group and BancFirst 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.