Correlation Between Coastal Financial and Five Star

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Can any of the company-specific risk be diversified away by investing in both Coastal Financial and Five Star 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 Coastal Financial and Five Star into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coastal Financial Corp and Five Star Bancorp, you can compare the effects of market volatilities on Coastal Financial and Five Star 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 Coastal Financial with a short position of Five Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coastal Financial and Five Star.

Diversification Opportunities for Coastal Financial and Five Star

0.91
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Coastal and Five is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Coastal Financial Corp and Five Star Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Star Bancorp and Coastal 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 Coastal Financial Corp are associated (or correlated) with Five Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Star Bancorp has no effect on the direction of Coastal Financial i.e., Coastal Financial and Five Star go up and down completely randomly.

Pair Corralation between Coastal Financial and Five Star

Considering the 90-day investment horizon Coastal Financial Corp is expected to generate 1.01 times more return on investment than Five Star. However, Coastal Financial is 1.01 times more volatile than Five Star Bancorp. It trades about 0.05 of its potential returns per unit of risk. Five Star Bancorp is currently generating about -0.06 per unit of risk. If you would invest  3,816  in Coastal Financial Corp on December 30, 2023 and sell it today you would earn a total of  71.00  from holding Coastal Financial Corp or generate 1.86% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Coastal Financial Corp  vs.  Five Star Bancorp

 Performance 
       Timeline  
Coastal Financial Corp 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Coastal Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Five Star Bancorp 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Five Star Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Coastal Financial and Five Star Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coastal Financial and Five Star

The main advantage of trading using opposite Coastal Financial and Five Star positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coastal Financial position performs unexpectedly, Five Star 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 Five Star will offset losses from the drop in Five Star's long position.
The idea behind Coastal Financial Corp and Five Star 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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