Correlation Between Financial Institutions and Waterstone Financial

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

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

Diversification Opportunities for Financial Institutions and Waterstone Financial

0.74

Correlation Coefficient

Financial Institutions  Waterstone Financial

Poor diversification

The 3 months correlation between Financial and Waterstone is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial and Financial Institutions 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 Financial Institutions are associated (or correlated) with Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Financial Institutions i.e., Financial Institutions and Waterstone Financial go up and down completely randomly.

Pair Corralation between Financial Institutions and Waterstone Financial

Given the investment horizon of 90 days Financial Institutions is expected to generate 1.23 times more return on investment than Waterstone Financial. However, Financial Institutions is 1.23 times more volatile than Waterstone Financial. It trades about 0.06 of its potential returns per unit of risk. Waterstone Financial is currently generating about 0.03 per unit of risk. If you would invest  2,528  in Financial Institutions on September 3, 2024 and sell it today you would earn a total of  188.00  from holding Financial Institutions or generate 7.44% return on investment over 90 days.

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

Financial Institutions  vs.  Waterstone Financial

Financial Institutions

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Institutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Financial Institutions may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Waterstone Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waterstone Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Financial Institutions and Waterstone Financial

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

The idea behind Financial Institutions and Waterstone Financial 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.