Correlation Between First Business and Bankwell Financial

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

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

Diversification Opportunities for First Business and Bankwell Financial

0.92

Correlation Coefficient

First Business  Bankwell Financial

Almost no diversification

The 3 months correlation between First and Bankwell is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding First Business Financial and Bankwell Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bankwell Financial and First Business 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 First Business Financial are associated (or correlated) with Bankwell Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bankwell Financial has no effect on the direction of First Business i.e., First Business and Bankwell Financial go up and down completely randomly.

Pair Corralation between First Business and Bankwell Financial

Given the investment horizon of 90 days First Business Financial is expected to under-perform the Bankwell Financial. But the stock apears to be less risky and, when comparing its historical volatility, First Business Financial is 1.12 times less risky than Bankwell Financial. The stock trades about -0.23 of its potential returns per unit of risk. The Bankwell Financial Group is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  3,315  in Bankwell Financial Group on September 29, 2024 and sell it today you would lose (179.00) from holding Bankwell Financial Group or give up 5.4% of portfolio value over 90 days.

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

First Business Financial  vs.  Bankwell Financial Group

First Business Financial

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Business Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, First Business is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Bankwell Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Bankwell Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Business and Bankwell Financial

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

The idea behind First Business Financial and Bankwell Financial Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.