Correlation Between Brookline Bancorp and Sound Financial

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

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

Diversification Opportunities for Brookline Bancorp and Sound Financial

0.27

Correlation Coefficient

Brookline Bancorp  Sound Financial

Modest diversification

The 3 months correlation between Brookline and Sound is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Brookline Bancorp and Sound Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Financial Bancorp and Brookline Bancorp 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 Brookline Bancorp are associated (or correlated) with Sound Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Financial Bancorp has no effect on the direction of Brookline Bancorp i.e., Brookline Bancorp and Sound Financial go up and down completely randomly.

Pair Corralation between Brookline Bancorp and Sound Financial

Given the investment horizon of 90 days Brookline Bancorp is expected to under-perform the Sound Financial. But the stock apears to be less risky and, when comparing its historical volatility, Brookline Bancorp is 1.06 times less risky than Sound Financial. The stock trades about -0.06 of its potential returns per unit of risk. The Sound Financial Bancorp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  5,242  in Sound Financial Bancorp on December 29, 2024 and sell it today you would lose (53.00) from holding Sound Financial Bancorp or give up 1.01% of portfolio value over 90 days.

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

Brookline Bancorp  vs.  Sound Financial Bancorp

Brookline Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookline Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Brookline Bancorp is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sound Financial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sound Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Sound Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Brookline Bancorp and Sound Financial

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

The idea behind Brookline Bancorp and Sound Financial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.