Correlation Between Five Star and Bridgewater Bancshares
Can any of the company-specific risk be diversified away by investing in both Five Star 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 Five Star and Bridgewater Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Five Star Bancorp and Bridgewater Bancshares, you can compare the effects of market volatilities on Five Star 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 Five Star with a short position of Bridgewater Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Star and Bridgewater Bancshares.
Diversification Opportunities for Five Star and Bridgewater Bancshares
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Five and Bridgewater is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Five Star Bancorp and Bridgewater Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgewater Bancshares and Five Star 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 Five Star Bancorp 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 Five Star i.e., Five Star and Bridgewater Bancshares go up and down completely randomly.
Pair Corralation between Five Star and Bridgewater Bancshares
Given the investment horizon of 90 days Five Star Bancorp is expected to under-perform the Bridgewater Bancshares. In addition to that, Five Star is 1.09 times more volatile than Bridgewater Bancshares. It trades about -0.16 of its total potential returns per unit of risk. Bridgewater Bancshares is currently generating about 0.03 per unit of volatility. If you would invest 1,159 in Bridgewater Bancshares on January 21, 2024 and sell it today you would earn a total of 8.00 from holding Bridgewater Bancshares or generate 0.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Five Star Bancorp vs. Bridgewater Bancshares
Performance |
| Timeline |
| Five Star Bancorp |
| Bridgewater Bancshares |
Five Star and Bridgewater Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Five Star and Bridgewater Bancshares
The main advantage of trading using opposite Five Star and Bridgewater Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Five Star 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 Five Star Bancorp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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