Correlation Between Esquire Financial and Bridgewater Bancshares
Can any of the company-specific risk be diversified away by investing in both Esquire Financial and Bridgewater Bancshares 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 Esquire Financial and Bridgewater Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Esquire Financial Holdings and Bridgewater Bancshares, you can compare the effects of market volatilities on Esquire Financial and Bridgewater Bancshares 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 Esquire Financial with a short position of Bridgewater Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Esquire Financial and Bridgewater Bancshares.
Diversification Opportunities for Esquire Financial and Bridgewater Bancshares
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Esquire and Bridgewater is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Esquire Financial Holdings and Bridgewater Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgewater Bancshares and Esquire 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 Esquire Financial Holdings are associated (or correlated) with Bridgewater Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridgewater Bancshares has no effect on the direction of Esquire Financial i.e., Esquire Financial and Bridgewater Bancshares go up and down completely randomly.
Pair Corralation between Esquire Financial and Bridgewater Bancshares
Considering the 90-day investment horizon Esquire Financial Holdings is expected to under-perform the Bridgewater Bancshares. But the stock apears to be less risky and, when comparing its historical volatility, Esquire Financial Holdings is 1.06 times less risky than Bridgewater Bancshares. The stock trades about -0.02 of its potential returns per unit of risk. The Bridgewater Bancshares is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,200 in Bridgewater Bancshares on January 20, 2024 and sell it today you would lose (33.00) from holding Bridgewater Bancshares or give up 2.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Esquire Financial Holdings vs. Bridgewater Bancshares
Performance |
| Timeline |
| Esquire Financial |
| Bridgewater Bancshares |
Esquire Financial and Bridgewater Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Esquire Financial and Bridgewater Bancshares
The main advantage of trading using opposite Esquire Financial and Bridgewater Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Esquire Financial position performs unexpectedly, Bridgewater Bancshares 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 Bridgewater Bancshares will offset losses from the drop in Bridgewater Bancshares' long position.The idea behind Esquire Financial Holdings and Bridgewater Bancshares 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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