Correlation Between Bankwell Financial and Sierra Bancorp

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

Diversification Opportunities for Bankwell Financial and Sierra Bancorp

0.78

Correlation Coefficient

Bankwell Financial  Sierra Bancorp

Poor diversification

The 3 months correlation between Bankwell and Sierra is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and Sierra Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Bancorp 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 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 Bankwell Financial i.e., Bankwell Financial and Sierra Bancorp go up and down completely randomly.

Pair Corralation between Bankwell Financial and Sierra Bancorp

Given the investment horizon of 90 days Bankwell Financial Group is expected to under-perform the Sierra Bancorp. In addition to that, Bankwell Financial is 1.03 times more volatile than Sierra Bancorp. It trades about -0.02 of its total potential returns per unit of risk. Sierra Bancorp is currently generating about -0.02 per unit of volatility. If you would invest  3,160  in Sierra Bancorp on December 1, 2024 and sell it today you would lose (88.00) from holding Sierra Bancorp or give up 2.78% of portfolio value over 90 days.

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

Bankwell Financial Group  vs.  Sierra Bancorp

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.

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.

Pair Trading with Bankwell Financial and Sierra Bancorp

The main advantage of trading using opposite Bankwell Financial and Sierra Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bankwell Financial 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 Bankwell Financial Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.