Correlation Between Bankwell Financial and Affinity Bancshares

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

Diversification Opportunities for Bankwell Financial and Affinity Bancshares

0.31

Correlation Coefficient

Bankwell Financial  Affinity Bancshares

Weak diversification

The 3 months correlation between Bankwell and Affinity is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares 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 Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Bankwell Financial and Affinity Bancshares

Given the investment horizon of 90 days Bankwell Financial Group is expected to generate 0.63 times more return on investment than Affinity Bancshares. However, Bankwell Financial Group is 1.59 times less risky than Affinity Bancshares. It trades about -0.02 of its potential returns per unit of risk. Affinity Bancshares is currently generating about -0.06 per unit of risk. If you would invest  3,109  in Bankwell Financial Group on December 30, 2024 and sell it today you would lose (96.00) from holding Bankwell Financial Group or give up 3.09% of portfolio value over 90 days.

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

Bankwell Financial Group  vs.  Affinity Bancshares

Bankwell Financial

Risk-Adjusted Performance

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 nearly stable technical and fundamental indicators, Bankwell Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Affinity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Bankwell Financial and Affinity Bancshares

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

The idea behind Bankwell Financial Group and Affinity 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.