Correlation Between Waterstone Financial and FS Bancorp

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

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

Diversification Opportunities for Waterstone Financial and FS Bancorp

0.86

Correlation Coefficient

Waterstone Financial  FS Bancorp

Very poor diversification

The 3 months correlation between Waterstone and FSBW is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Waterstone Financial and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Bancorp and Waterstone Financial 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 Waterstone Financial are associated (or correlated) with FS Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Bancorp has no effect on the direction of Waterstone Financial i.e., Waterstone Financial and FS Bancorp go up and down completely randomly.

Pair Corralation between Waterstone Financial and FS Bancorp

Given the investment horizon of 90 days Waterstone Financial is expected to generate 1.66 times less return on investment than FS Bancorp. But when comparing it to its historical volatility, Waterstone Financial is 1.06 times less risky than FS Bancorp. It trades about 0.05 of its potential returns per unit of risk. FS Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,246  in FS Bancorp on September 3, 2024 and sell it today you would earn a total of  1,472  from holding FS Bancorp or generate 45.35% return on investment over 90 days.

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

Waterstone Financial  vs.  FS Bancorp

Waterstone Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waterstone Financial are ranked lower than 1 (%) 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.

FS Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FS Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, FS Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Waterstone Financial and FS Bancorp

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

The idea behind Waterstone Financial and FS 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.