Correlation Between Westamerica Bancorporation and Bayfirst Financial

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

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

Diversification Opportunities for Westamerica Bancorporation and Bayfirst Financial

0.28

Correlation Coefficient

Westamerica Bancorporation  Bayfirst Financial

Modest diversification

The 3 months correlation between Westamerica and Bayfirst is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Westamerica Bancorp. and Bayfirst Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayfirst Financial Corp and Westamerica Bancorporation 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 Westamerica Bancorporation are associated (or correlated) with Bayfirst Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayfirst Financial Corp has no effect on the direction of Westamerica Bancorporation i.e., Westamerica Bancorporation and Bayfirst Financial go up and down completely randomly.

Pair Corralation between Westamerica Bancorporation and Bayfirst Financial

Given the investment horizon of 90 days Westamerica Bancorporation is expected to under-perform the Bayfirst Financial. But the stock apears to be less risky and, when comparing its historical volatility, Westamerica Bancorporation is 1.25 times less risky than Bayfirst Financial. The stock trades about -0.35 of its potential returns per unit of risk. The Bayfirst Financial Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,302  in Bayfirst Financial Corp on September 23, 2024 and sell it today you would earn a total of  39.00  from holding Bayfirst Financial Corp or generate 3.0% return on investment over 90 days.

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

Westamerica Bancorp.  vs.  Bayfirst Financial Corp

Westamerica Bancorporation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Westamerica Bancorporation are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Westamerica Bancorporation is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bayfirst Financial Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bayfirst Financial Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Bayfirst Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Westamerica Bancorporation and Bayfirst Financial

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

The idea behind Westamerica Bancorporation and Bayfirst Financial Corp 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.