Correlation Between Bankwell Financial and HomeTrust Bancshares

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

Diversification Opportunities for Bankwell Financial and HomeTrust Bancshares

0.91

Correlation Coefficient

Bankwell Financial  HomeTrust Bancshares

Almost no diversification

The 3 months correlation between Bankwell and HomeTrust is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and HomeTrust Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeTrust 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 HomeTrust Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeTrust Bancshares has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and HomeTrust Bancshares go up and down completely randomly.

Pair Corralation between Bankwell Financial and HomeTrust Bancshares

Given the investment horizon of 90 days Bankwell Financial Group is expected to generate 1.04 times more return on investment than HomeTrust Bancshares. However, Bankwell Financial is 1.04 times more volatile than HomeTrust Bancshares. It trades about 0.1 of its potential returns per unit of risk. HomeTrust Bancshares is currently generating about 0.06 per unit of risk. If you would invest  2,892  in Bankwell Financial Group on September 8, 2024 and sell it today you would earn a total of  408.00  from holding Bankwell Financial Group or generate 14.11% return on investment over 90 days.

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

Bankwell Financial Group  vs.  HomeTrust Bancshares

Bankwell Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 7 (%) 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.

HomeTrust Bancshares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HomeTrust Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile fundamental drivers, HomeTrust Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bankwell Financial and HomeTrust Bancshares

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

The idea behind Bankwell Financial Group and HomeTrust 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.