Correlation Between Finward Bancorp and 1st Source

Can any of the company-specific risk be diversified away by investing in both Finward Bancorp and 1st Source 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 Finward Bancorp and 1st Source into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Finward Bancorp and 1st Source, you can compare the effects of market volatilities on Finward Bancorp and 1st Source 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 Finward Bancorp with a short position of 1st Source. Check out your portfolio center. Please also check ongoing floating volatility patterns of Finward Bancorp and 1st Source.

Diversification Opportunities for Finward Bancorp and 1st Source

0.07

Correlation Coefficient

Finward Bancorp  1st Source

Significant diversification

The 3 months correlation between Finward and 1st is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Finward Bancorp and 1st Source in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Source and Finward Bancorp 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 Finward Bancorp are associated (or correlated) with 1st Source. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Source has no effect on the direction of Finward Bancorp i.e., Finward Bancorp and 1st Source go up and down completely randomly.

Pair Corralation between Finward Bancorp and 1st Source

Given the investment horizon of 90 days Finward Bancorp is expected to under-perform the 1st Source. But the stock apears to be less risky and, when comparing its historical volatility, Finward Bancorp is 1.25 times less risky than 1st Source. The stock trades about -0.17 of its potential returns per unit of risk. The 1st Source is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,434  in 1st Source on December 1, 2024 and sell it today you would earn a total of  56.00  from holding 1st Source or generate 0.87% return on investment over 90 days.

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

Finward Bancorp  vs.  1st Source

Finward Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Finward Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

1st Source

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in 1st Source are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, 1st Source is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Finward Bancorp and 1st Source

The main advantage of trading using opposite Finward Bancorp and 1st Source positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Finward Bancorp position performs unexpectedly, 1st Source 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 1st Source will offset losses from the drop in 1st Source's long position.

The idea behind Finward Bancorp and 1st Source 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.