Correlation Between Loandepot and Waterstone Financial

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

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

Diversification Opportunities for Loandepot and Waterstone Financial

0.86

Correlation Coefficient

Loandepot  Waterstone Financial

Very poor diversification

The 3 months correlation between Loandepot and Waterstone is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Loandepot and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial and Loandepot 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 Loandepot are associated (or correlated) with Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Loandepot i.e., Loandepot and Waterstone Financial go up and down completely randomly.

Pair Corralation between Loandepot and Waterstone Financial

Considering the 90-day investment horizon Loandepot is expected to under-perform the Waterstone Financial. In addition to that, Loandepot is 1.96 times more volatile than Waterstone Financial. It trades about -0.34 of its total potential returns per unit of risk. Waterstone Financial is currently generating about -0.57 per unit of volatility. If you would invest  1,472  in Waterstone Financial on October 13, 2024 and sell it today you would lose (261.00) from holding Waterstone Financial or give up 17.73% of portfolio value over 90 days.

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

Loandepot  vs.  Waterstone Financial

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loandepot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Loandepot and Waterstone Financial

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

The idea behind Loandepot and Waterstone 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..