Correlation Between Coastal Financial and CF Bankshares

Can any of the company-specific risk be diversified away by investing in both Coastal Financial and CF Bankshares 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 Coastal Financial and CF Bankshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Coastal Financial Corp and CF Bankshares, you can compare the effects of market volatilities on Coastal Financial and CF Bankshares 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 Coastal Financial with a short position of CF Bankshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coastal Financial and CF Bankshares.

Diversification Opportunities for Coastal Financial and CF Bankshares

0.96

Correlation Coefficient

Coastal Financial  CF Bankshares

Almost no diversification

The 3 months correlation between Coastal and CFBK is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Coastal Financial Corp and CF Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Bankshares and Coastal 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 Coastal Financial Corp are associated (or correlated) with CF Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Bankshares has no effect on the direction of Coastal Financial i.e., Coastal Financial and CF Bankshares go up and down completely randomly.

Pair Corralation between Coastal Financial and CF Bankshares

Considering the 90-day investment horizon Coastal Financial Corp is expected to generate 0.98 times more return on investment than CF Bankshares. However, Coastal Financial Corp is 1.02 times less risky than CF Bankshares. It trades about 0.29 of its potential returns per unit of risk. CF Bankshares is currently generating about 0.15 per unit of risk. If you would invest  4,919  in Coastal Financial Corp on September 12, 2024 and sell it today you would earn a total of  2,661  from holding Coastal Financial Corp or generate 54.1% return on investment over 90 days.

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

Coastal Financial Corp  vs.  CF Bankshares

Coastal Financial Corp

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Coastal Financial Corp are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental indicators, Coastal Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

CF Bankshares

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CF Bankshares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, CF Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coastal Financial and CF Bankshares

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

The idea behind Coastal Financial Corp and CF Bankshares 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.