Correlation Between Bankwell Financial and Home Bancorp

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

Diversification Opportunities for Bankwell Financial and Home Bancorp

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Bankwell and Home is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home 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 Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and Home Bancorp go up and down completely randomly.

Pair Corralation between Bankwell Financial and Home Bancorp

Given the investment horizon of 90 days Bankwell Financial is expected to generate 1.32 times less return on investment than Home Bancorp. In addition to that, Bankwell Financial is 1.15 times more volatile than Home Bancorp. It trades about 0.1 of its total potential returns per unit of risk. Home Bancorp is currently generating about 0.16 per unit of volatility. If you would invest  4,107  in Home Bancorp on September 6, 2024 and sell it today you would earn a total of  906.00  from holding Home Bancorp or generate 22.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Bankwell Financial Group  vs.  Home Bancorp

 Performance 
       Timeline  
Bankwell Financial 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Bankwell Financial reported solid returns over the last few months and may actually be approaching a breakup point.
Home Bancorp 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Bankwell Financial and Home Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Bankwell Financial and Home Bancorp

The main advantage of trading using opposite Bankwell Financial and Home Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bankwell Financial position performs unexpectedly, Home 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 Home Bancorp will offset losses from the drop in Home Bancorp's long position.
The idea behind Bankwell Financial Group and Home 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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