Correlation Between Sierra Bancorp and Washington Trust

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

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

Diversification Opportunities for Sierra Bancorp and Washington Trust

0.84

Correlation Coefficient

Sierra Bancorp  Washington Trust

Very poor diversification

The 3 months correlation between Sierra and Washington is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Bancorp and Washington Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Trust Bancorp and Sierra 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 Sierra Bancorp are associated (or correlated) with Washington Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Trust Bancorp has no effect on the direction of Sierra Bancorp i.e., Sierra Bancorp and Washington Trust go up and down completely randomly.

Pair Corralation between Sierra Bancorp and Washington Trust

Given the investment horizon of 90 days Sierra Bancorp is expected to generate 1.34 times less return on investment than Washington Trust. In addition to that, Sierra Bancorp is 1.06 times more volatile than Washington Trust Bancorp. It trades about 0.01 of its total potential returns per unit of risk. Washington Trust Bancorp is currently generating about 0.02 per unit of volatility. If you would invest  3,126  in Washington Trust Bancorp on December 21, 2024 and sell it today you would earn a total of  28.00  from holding Washington Trust Bancorp or generate 0.9% return on investment over 90 days.

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

Sierra Bancorp  vs.  Washington Trust Bancorp

Sierra Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sierra Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Sierra Bancorp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Washington Trust Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Washington Trust Bancorp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Washington Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Sierra Bancorp and Washington Trust

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

The idea behind Sierra Bancorp and Washington Trust 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.