Correlation Between RiverFront Strategic and Sound Financial

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

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

Diversification Opportunities for RiverFront Strategic and Sound Financial

0.12

Correlation Coefficient

RiverFront Strategic  Sound Financial

Average diversification

The 3 months correlation between RiverFront and Sound is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding RiverFront Strategic Income 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 RiverFront Strategic 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 RiverFront Strategic Income 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 RiverFront Strategic i.e., RiverFront Strategic and Sound Financial go up and down completely randomly.

Pair Corralation between RiverFront Strategic and Sound Financial

Given the investment horizon of 90 days RiverFront Strategic is expected to generate 116.59 times less return on investment than Sound Financial. But when comparing it to its historical volatility, RiverFront Strategic Income is 115.33 times less risky than Sound Financial. It trades about 0.04 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,782  in Sound Financial Bancorp on September 20, 2024 and sell it today you would earn a total of  1,429  from holding Sound Financial Bancorp or generate 37.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.74%
Values	Daily Returns

RiverFront Strategic Income  vs.  Sound Financial Bancorp

RiverFront Strategic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RiverFront Strategic Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, RiverFront Strategic is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 RiverFront Strategic and Sound Financial

The main advantage of trading using opposite RiverFront Strategic and Sound Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RiverFront Strategic 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 RiverFront Strategic Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.