Correlation Between First Bancorp and Bankwell Financial

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

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

Diversification Opportunities for First Bancorp and Bankwell Financial

0.94

Correlation Coefficient

First Bancorp  Bankwell Financial

Almost no diversification

The 3 months correlation between First and Bankwell is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Bankwell Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bankwell Financial and First Bancorp 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 First Bancorp 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 First Bancorp i.e., First Bancorp and Bankwell Financial go up and down completely randomly.

Pair Corralation between First Bancorp and Bankwell Financial

Given the investment horizon of 90 days First Bancorp is expected to generate 1.0 times less return on investment than Bankwell Financial. In addition to that, First Bancorp is 1.16 times more volatile than Bankwell Financial Group. It trades about 0.03 of its total potential returns per unit of risk. Bankwell Financial Group is currently generating about 0.03 per unit of volatility. If you would invest  2,710  in Bankwell Financial Group on September 18, 2024 and sell it today you would earn a total of  602.00  from holding Bankwell Financial Group or generate 22.21% return on investment over 90 days.

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

First Bancorp  vs.  Bankwell Financial Group

First Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with First Bancorp and Bankwell Financial

The main advantage of trading using opposite First Bancorp and Bankwell Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Bancorp 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 First Bancorp 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 CEOs Directory module to screen CEOs from public companies around the world.