Correlation Between Five Star and Southern States

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

By analyzing existing cross correlation between Five Star Bancorp and Southern States Bancshares, you can compare the effects of market volatilities on Five Star and Southern States 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 Five Star with a short position of Southern States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Five Star and Southern States.

Diversification Opportunities for Five Star and Southern States

0.95

Correlation Coefficient

Five Star  Southern States

Almost no diversification

The 3 months correlation between Five and Southern is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Five Star Bancorp and Southern States Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern States Banc and Five Star 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 Five Star Bancorp are associated (or correlated) with Southern States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern States Banc has no effect on the direction of Five Star i.e., Five Star and Southern States go up and down completely randomly.

Pair Corralation between Five Star and Southern States

Given the investment horizon of 90 days Five Star is expected to generate 1.47 times less return on investment than Southern States. But when comparing it to its historical volatility, Five Star Bancorp is 1.19 times less risky than Southern States. It trades about 0.11 of its potential returns per unit of risk. Southern States Bancshares is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,949  in Southern States Bancshares on September 12, 2024 and sell it today you would earn a total of  728.00  from holding Southern States Bancshares or generate 24.69% return on investment over 90 days.

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

Five Star Bancorp  vs.  Southern States Bancshares

Five Star Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Star Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, Five Star exhibited solid returns over the last few months and may actually be approaching a breakup point.

Southern States Banc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern States Bancshares are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Southern States disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Five Star and Southern States

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

The idea behind Five Star Bancorp and Southern States Bancshares 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.