Correlation Between Bankwell Financial and FS Bancorp

Can any of the company-specific risk be diversified away by investing in both Bankwell 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 Bankwell 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 Bankwell Financial Group and FS Bancorp, you can compare the effects of market volatilities on Bankwell 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 Bankwell Financial with a short position of FS Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bankwell Financial and FS Bancorp.

Diversification Opportunities for Bankwell Financial and FS Bancorp

0.86

Correlation Coefficient

Bankwell Financial  FS Bancorp

Very poor diversification

The 3 months correlation between Bankwell and FSBW is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Bancorp and Bankwell 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 Bankwell Financial Group 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 Bankwell Financial i.e., Bankwell Financial and FS Bancorp go up and down completely randomly.

Pair Corralation between Bankwell Financial and FS Bancorp

Given the investment horizon of 90 days Bankwell Financial Group is expected to under-perform the FS Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Bankwell Financial Group is 1.15 times less risky than FS Bancorp. The stock trades about -0.09 of its potential returns per unit of risk. The FS Bancorp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,425  in FS Bancorp on February 2, 2024 and sell it today you would lose (250.00) from holding FS Bancorp or give up 7.3% of portfolio value over 90 days.

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

Bankwell Financial Group  vs.  FS Bancorp

Bankwell Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bankwell Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

FS Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FS Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental drivers, FS Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Bankwell Financial and FS Bancorp

The main advantage of trading using opposite Bankwell Financial and FS Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bankwell 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 Bankwell Financial Group 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.