Correlation Between LBC and Bridgewater Bancshares

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

Diversification Opportunities for LBC and Bridgewater Bancshares

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between LBC and Bridgewater is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding LBC and Bridgewater Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridgewater Bancshares and LBC 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 LBC 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 LBC i.e., LBC and Bridgewater Bancshares go up and down completely randomly.

Pair Corralation between LBC and Bridgewater Bancshares

Considering the 90-day investment horizon LBC is expected to generate 0.18 times more return on investment than Bridgewater Bancshares. However, LBC is 5.61 times less risky than Bridgewater Bancshares. It trades about 0.58 of its potential returns per unit of risk. Bridgewater Bancshares is currently generating about -0.03 per unit of risk. If you would invest  910.00  in LBC on December 30, 2023 and sell it today you would earn a total of  5.00  from holding LBC or generate 0.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy13.64%
ValuesDaily Returns

LBC  vs.  Bridgewater Bancshares

 Performance 
       Timeline  
LBC 

Risk-Adjusted Performance

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High
Very Weak
Over the last 90 days LBC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating 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.
Bridgewater Bancshares 

Risk-Adjusted Performance

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

LBC and Bridgewater Bancshares Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with LBC and Bridgewater Bancshares

The main advantage of trading using opposite LBC and Bridgewater Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LBC 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 LBC 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.
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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