Correlation Between Enterprise Financial and Sound Financial

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

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

Diversification Opportunities for Enterprise Financial and Sound Financial

0.19

Correlation Coefficient

Enterprise Financial  Sound Financial

Average diversification

The 3 months correlation between Enterprise and Sound is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Financial Services 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 Enterprise 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 Enterprise Financial Services 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 Enterprise Financial i.e., Enterprise Financial and Sound Financial go up and down completely randomly.

Pair Corralation between Enterprise Financial and Sound Financial

Assuming the 90 days horizon Enterprise Financial is expected to generate 68.72 times less return on investment than Sound Financial. But when comparing it to its historical volatility, Enterprise Financial Services is 54.53 times less risky than Sound Financial. It trades about 0.05 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,965  in Sound Financial Bancorp on October 22, 2024 and sell it today you would earn a total of  1,368  from holding Sound Financial Bancorp or generate 34.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.63%
Values	Daily Returns

Enterprise Financial Services  vs.  Sound Financial Bancorp

Enterprise Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enterprise Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Preferred Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Sound Financial Bancorp

Risk-Adjusted Performance

0 of 100

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 rather sound fundamental drivers, Sound Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Enterprise Financial and Sound Financial

The main advantage of trading using opposite Enterprise Financial and Sound Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enterprise Financial 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 Enterprise Financial Services 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.