Correlation Between FS Bancorp and Middlefield Banc

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

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

Diversification Opportunities for FS Bancorp and Middlefield Banc

0.88

Correlation Coefficient

FS Bancorp  Middlefield Banc

Very poor diversification

The 3 months correlation between FSBW and Middlefield is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding FS Bancorp and Middlefield Banc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlefield Banc and FS 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 FS Bancorp are associated (or correlated) with Middlefield Banc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlefield Banc has no effect on the direction of FS Bancorp i.e., FS Bancorp and Middlefield Banc go up and down completely randomly.

Pair Corralation between FS Bancorp and Middlefield Banc

Given the investment horizon of 90 days FS Bancorp is expected to under-perform the Middlefield Banc. But the stock apears to be less risky and, when comparing its historical volatility, FS Bancorp is 1.25 times less risky than Middlefield Banc. The stock trades about -0.13 of its potential returns per unit of risk. The Middlefield Banc is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,050  in Middlefield Banc on December 2, 2024 and sell it today you would lose (370.00) from holding Middlefield Banc or give up 12.13% of portfolio value over 90 days.

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

FS Bancorp  vs.  Middlefield Banc

FS Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days FS Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Middlefield Banc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Middlefield Banc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with FS Bancorp and Middlefield Banc

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

The idea behind FS Bancorp and Middlefield Banc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.