Correlation Between Lake Shore and Bankwell Financial

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

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

Diversification Opportunities for Lake Shore and Bankwell Financial

0.06

Correlation Coefficient

Lake Shore  Bankwell Financial

Significant diversification

The 3 months correlation between Lake and Bankwell is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Lake Shore 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 Lake Shore 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 Lake Shore 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 Lake Shore i.e., Lake Shore and Bankwell Financial go up and down completely randomly.

Pair Corralation between Lake Shore and Bankwell Financial

Given the investment horizon of 90 days Lake Shore Bancorp is expected to generate 1.69 times more return on investment than Bankwell Financial. However, Lake Shore is 1.69 times more volatile than Bankwell Financial Group. It trades about 0.13 of its potential returns per unit of risk. Bankwell Financial Group is currently generating about -0.02 per unit of risk. If you would invest  1,330  in Lake Shore Bancorp on December 1, 2024 and sell it today you would earn a total of  287.00  from holding Lake Shore Bancorp or generate 21.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.33%
Values	Daily Returns

Lake Shore Bancorp  vs.  Bankwell Financial Group

Lake Shore Bancorp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lake Shore Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, Lake Shore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Bankwell Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bankwell Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Bankwell Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lake Shore and Bankwell Financial

The main advantage of trading using opposite Lake Shore and Bankwell Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lake Shore 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 Lake Shore 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.