Correlation Between Franklin Financial and Sterling Bancorp

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

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

Diversification Opportunities for Franklin Financial and Sterling Bancorp

0.62

Correlation Coefficient

Franklin Financial  Sterling Bancorp

Poor diversification

The 3 months correlation between Franklin and Sterling is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Financial Services and Sterling Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Bancorp and Franklin 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 Franklin Financial Services are associated (or correlated) with Sterling Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Bancorp has no effect on the direction of Franklin Financial i.e., Franklin Financial and Sterling Bancorp go up and down completely randomly.

Pair Corralation between Franklin Financial and Sterling Bancorp

Given the investment horizon of 90 days Franklin Financial Services is expected to under-perform the Sterling Bancorp. In addition to that, Franklin Financial is 1.2 times more volatile than Sterling Bancorp. It trades about -0.6 of its total potential returns per unit of risk. Sterling Bancorp is currently generating about -0.12 per unit of volatility. If you would invest  485.00  in Sterling Bancorp on October 12, 2024 and sell it today you would lose (12.00) from holding Sterling Bancorp or give up 2.47% of portfolio value over 90 days.

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

Franklin Financial Services  vs.  Sterling Bancorp

Franklin Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sterling Bancorp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental drivers, Sterling Bancorp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Franklin Financial and Sterling Bancorp

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

The idea behind Franklin Financial Services and Sterling 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 Transaction History module to view history of all your transactions and understand their impact on performance.