Correlation Between Northeast Community and Sound Financial

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

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

Diversification Opportunities for Northeast Community and Sound Financial

-0.12

Correlation Coefficient

Northeast Community  Sound Financial

Good diversification

The 3 months correlation between Northeast and Sound is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Northeast Community Bancorp and Sound Financial Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Financial Bancorp and Northeast Community 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 Northeast Community Bancorp are associated (or correlated) with Sound Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Financial Bancorp has no effect on the direction of Northeast Community i.e., Northeast Community and Sound Financial go up and down completely randomly.

Pair Corralation between Northeast Community and Sound Financial

Given the investment horizon of 90 days Northeast Community Bancorp is expected to generate 1.53 times more return on investment than Sound Financial. However, Northeast Community is 1.53 times more volatile than Sound Financial Bancorp. It trades about 0.22 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about -0.01 per unit of risk. If you would invest  2,223  in Northeast Community Bancorp on September 3, 2024 and sell it today you would earn a total of  792.00  from holding Northeast Community Bancorp or generate 35.63% return on investment over 90 days.

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

Northeast Community Bancorp  vs.  Sound Financial Bancorp

Northeast Community

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Community Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Northeast Community sustained solid returns over the last few months and may actually be approaching a breakup point.

Sound Financial Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sound Financial Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Sound Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Northeast Community and Sound Financial

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

The idea behind Northeast Community Bancorp and Sound Financial 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 Transaction History module to view history of all your transactions and understand their impact on performance.