Correlation Between Home Bancorp and Bankwell Financial

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Can any of the company-specific risk be diversified away by investing in both Home Bancorp and Bankwell 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 Home Bancorp and Bankwell Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Bancorp and Bankwell Financial Group, you can compare the effects of market volatilities on Home Bancorp and Bankwell 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 Home Bancorp with a short position of Bankwell Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Bancorp and Bankwell Financial.

Diversification Opportunities for Home Bancorp and Bankwell Financial

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home and Bankwell is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Home Bancorp and Bankwell Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bankwell Financial and Home 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 Home Bancorp are associated (or correlated) with Bankwell Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bankwell Financial has no effect on the direction of Home Bancorp i.e., Home Bancorp and Bankwell Financial go up and down completely randomly.

Pair Corralation between Home Bancorp and Bankwell Financial

Given the investment horizon of 90 days Home Bancorp is expected to generate 13.99 times less return on investment than Bankwell Financial. But when comparing it to its historical volatility, Home Bancorp is 1.21 times less risky than Bankwell Financial. It trades about 0.02 of its potential returns per unit of risk. Bankwell Financial Group is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,076  in Bankwell Financial Group on September 9, 2024 and sell it today you would earn a total of  224.00  from holding Bankwell Financial Group or generate 7.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Bancorp  vs.  Bankwell Financial Group

 Performance 
       Timeline  
Home Bancorp 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Home Bancorp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Home Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.
Bankwell Financial 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Bankwell Financial Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Bankwell Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Home Bancorp and Bankwell Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Bancorp and Bankwell Financial

The main advantage of trading using opposite Home Bancorp and Bankwell Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Bancorp position performs unexpectedly, Bankwell 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 Bankwell Financial will offset losses from the drop in Bankwell Financial's long position.
The idea behind Home Bancorp and Bankwell Financial Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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