Correlation Between FS Bancorp and Southern Michigan

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

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

Diversification Opportunities for FS Bancorp and Southern Michigan

0.93

Correlation Coefficient

FS Bancorp  Southern Michigan

Almost no diversification

The 3 months correlation between FXLG and Southern is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding FS Bancorp and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp and FS 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 FS Bancorp are associated (or correlated) with Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of FS Bancorp i.e., FS Bancorp and Southern Michigan go up and down completely randomly.

Pair Corralation between FS Bancorp and Southern Michigan

Given the investment horizon of 90 days FS Bancorp is expected to generate 1.1 times more return on investment than Southern Michigan. However, FS Bancorp is 1.1 times more volatile than Southern Michigan Bancorp. It trades about 0.02 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.02 per unit of risk. If you would invest  3,053  in FS Bancorp on September 29, 2024 and sell it today you would earn a total of  127.00  from holding FS Bancorp or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	84.81%
Values	Daily Returns

FS Bancorp  vs.  Southern Michigan Bancorp

FS Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FS Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, FS Bancorp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Southern Michigan Bancorp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Southern Michigan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FS Bancorp and Southern Michigan

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

The idea behind FS Bancorp and Southern Michigan Bancorp 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 Transaction History module to view history of all your transactions and understand their impact on performance.