Correlation Between Eastern Bankshares and Sound Financial

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

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

Diversification Opportunities for Eastern Bankshares and Sound Financial

-0.23

Correlation Coefficient

Eastern Bankshares  Sound Financial

Very good diversification

The 3 months correlation between Eastern and Sound is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and Sound Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Financial Bancorp and Eastern Bankshares 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 Eastern Bankshares are associated (or correlated) with Sound Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Financial Bancorp has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and Sound Financial go up and down completely randomly.

Pair Corralation between Eastern Bankshares and Sound Financial

Considering the 90-day investment horizon Eastern Bankshares is expected to generate 1.52 times more return on investment than Sound Financial. However, Eastern Bankshares is 1.52 times more volatile than Sound Financial Bancorp. It trades about 0.05 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about 0.06 per unit of risk. If you would invest  1,197  in Eastern Bankshares on November 27, 2024 and sell it today you would earn a total of  554.00  from holding Eastern Bankshares or generate 46.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.45%
Values	Daily Returns

Eastern Bankshares  vs.  Sound Financial Bancorp

Eastern Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sound Financial Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sound Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Eastern Bankshares and Sound Financial

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

The idea behind Eastern Bankshares and Sound Financial 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.

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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.