Correlation Between FS Bancorp and William Penn

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

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

Diversification Opportunities for FS Bancorp and William Penn

0.85

Correlation Coefficient

FS Bancorp  William Penn

Very poor diversification

The 3 months correlation between FSBW and William is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding FS Bancorp and William Penn Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on William Penn Bancorp 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 William Penn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of William Penn Bancorp has no effect on the direction of FS Bancorp i.e., FS Bancorp and William Penn go up and down completely randomly.

Pair Corralation between FS Bancorp and William Penn

Given the investment horizon of 90 days FS Bancorp is expected to under-perform the William Penn. In addition to that, FS Bancorp is 1.39 times more volatile than William Penn Bancorp. It trades about -0.36 of its total potential returns per unit of risk. William Penn Bancorp is currently generating about -0.32 per unit of volatility. If you would invest  1,322  in William Penn Bancorp on September 29, 2024 and sell it today you would lose (120.00) from holding William Penn Bancorp or give up 9.08% 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.  William Penn Bancorp

FS Bancorp

Risk-Adjusted Performance

0 of 100

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 fairly stable fundamental drivers, FS Bancorp is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

William Penn Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days William Penn Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, William Penn is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FS Bancorp and William Penn

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

The idea behind FS Bancorp and William Penn 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.