Correlation Between First Sound and WTB Financial

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

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

Diversification Opportunities for First Sound and WTB Financial

0.58

Correlation Coefficient

First Sound  WTB Financial

Very weak diversification

The 3 months correlation between First and WTB is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding First Sound Bank and WTB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WTB Financial and First Sound 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 First Sound Bank are associated (or correlated) with WTB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WTB Financial has no effect on the direction of First Sound i.e., First Sound and WTB Financial go up and down completely randomly.

Pair Corralation between First Sound and WTB Financial

Given the investment horizon of 90 days First Sound is expected to generate 5.54 times less return on investment than WTB Financial. But when comparing it to its historical volatility, First Sound Bank is 5.96 times less risky than WTB Financial. It trades about 0.06 of its potential returns per unit of risk. WTB Financial is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  25,810  in WTB Financial on September 4, 2024 and sell it today you would earn a total of  4,490  from holding WTB Financial or generate 17.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	41.18%
Values	Daily Returns

First Sound Bank  vs.  WTB Financial

First Sound Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Sound Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Sound is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

WTB Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WTB Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, WTB Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Sound and WTB Financial

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

The idea behind First Sound Bank and WTB Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.