Correlation Between Colony Bankcorp and Bankwell Financial

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

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

Diversification Opportunities for Colony Bankcorp and Bankwell Financial

0.9

Correlation Coefficient

Colony Bankcorp  Bankwell Financial

Almost no diversification

The 3 months correlation between Colony and Bankwell is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Colony Bankcorp and Bankwell Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bankwell Financial and Colony Bankcorp 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 Colony Bankcorp are associated (or correlated) with Bankwell Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bankwell Financial has no effect on the direction of Colony Bankcorp i.e., Colony Bankcorp and Bankwell Financial go up and down completely randomly.

Pair Corralation between Colony Bankcorp and Bankwell Financial

Given the investment horizon of 90 days Colony Bankcorp is expected to generate 0.86 times more return on investment than Bankwell Financial. However, Colony Bankcorp is 1.17 times less risky than Bankwell Financial. It trades about 0.14 of its potential returns per unit of risk. Bankwell Financial Group is currently generating about 0.11 per unit of risk. If you would invest  1,483  in Colony Bankcorp on August 31, 2024 and sell it today you would earn a total of  279.00  from holding Colony Bankcorp or generate 18.81% return on investment over 90 days.

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

Colony Bankcorp  vs.  Bankwell Financial Group

Colony Bankcorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Colony Bankcorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Colony Bankcorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Bankwell Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Bankwell Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Colony Bankcorp and Bankwell Financial

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

The idea behind Colony Bankcorp and Bankwell Financial Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.