Correlation Between BankFinancial and Sierra Bancorp

Can any of the company-specific risk be diversified away by investing in both BankFinancial and Sierra 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 BankFinancial and Sierra Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BankFinancial and Sierra Bancorp, you can compare the effects of market volatilities on BankFinancial and Sierra 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 BankFinancial with a short position of Sierra Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of BankFinancial and Sierra Bancorp.

Diversification Opportunities for BankFinancial and Sierra Bancorp

0.53

Correlation Coefficient

BankFinancial  Sierra Bancorp

Very weak diversification

The 3 months correlation between BankFinancial and Sierra is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding BankFinancial and Sierra Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Bancorp and BankFinancial 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 BankFinancial are associated (or correlated) with Sierra Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Bancorp has no effect on the direction of BankFinancial i.e., BankFinancial and Sierra Bancorp go up and down completely randomly.

Pair Corralation between BankFinancial and Sierra Bancorp

Given the investment horizon of 90 days BankFinancial is expected to generate 0.58 times more return on investment than Sierra Bancorp. However, BankFinancial is 1.72 times less risky than Sierra Bancorp. It trades about 0.11 of its potential returns per unit of risk. Sierra Bancorp is currently generating about 0.05 per unit of risk. If you would invest  1,180  in BankFinancial on September 3, 2024 and sell it today you would earn a total of  158.00  from holding BankFinancial or generate 13.39% return on investment over 90 days.

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

BankFinancial  vs.  Sierra Bancorp

BankFinancial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BankFinancial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak forward indicators, BankFinancial displayed solid returns over the last few months and may actually be approaching a breakup point.

Sierra Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sierra Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BankFinancial and Sierra Bancorp

The main advantage of trading using opposite BankFinancial and Sierra Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BankFinancial position performs unexpectedly, Sierra 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 Sierra Bancorp will offset losses from the drop in Sierra Bancorp's long position.

The idea behind BankFinancial and Sierra 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.