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

0.55

Correlation Coefficient

Five Star  Bridgewater Bancshares

Very weak diversification

The 3 months correlation between Five and Bridgewater is 0.55. 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 is expected to generate 3.15 times less return on investment than Bridgewater Bancshares. But when comparing it to its historical volatility, Five Star Bancorp is 2.29 times less risky than Bridgewater Bancshares. It trades about 0.04 of its potential returns per unit of risk. Bridgewater Bancshares is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,130  in Bridgewater Bancshares on February 3, 2024 and sell it today you would earn a total of  26.00  from holding Bridgewater Bancshares or generate 2.3% return on investment over 90 days.

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

Five Star Bancorp  vs.  Bridgewater Bancshares

Five Star Bancorp

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental drivers, Five Star is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bridgewater Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgewater Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bridgewater Bancshares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.