Correlation Between CNB Financial and Waterstone Financial

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

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

Diversification Opportunities for CNB Financial and Waterstone Financial

0.71

Correlation Coefficient

CNB Financial  Waterstone Financial

Poor diversification

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

Pair Corralation between CNB Financial and Waterstone Financial

Given the investment horizon of 90 days CNB Financial is expected to generate 0.93 times more return on investment than Waterstone Financial. However, CNB Financial is 1.08 times less risky than Waterstone Financial. It trades about -0.43 of its potential returns per unit of risk. Waterstone Financial is currently generating about -0.52 per unit of risk. If you would invest  2,740  in CNB Financial on October 10, 2024 and sell it today you would lose (329.00) from holding CNB Financial or give up 12.01% of portfolio value over 90 days.

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

CNB Financial  vs.  Waterstone Financial

CNB Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNB Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CNB Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CNB Financial and Waterstone Financial

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

The idea behind CNB Financial and Waterstone Financial 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.