Correlation Between Sandy Spring and Sound Financial

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

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

Diversification Opportunities for Sandy Spring and Sound Financial

0.13

Correlation Coefficient

Sandy Spring  Sound Financial

Average diversification

The 3 months correlation between Sandy and Sound is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sandy Spring 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 Sandy Spring 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 Sandy Spring 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 Sandy Spring i.e., Sandy Spring and Sound Financial go up and down completely randomly.

Pair Corralation between Sandy Spring and Sound Financial

Given the investment horizon of 90 days Sandy Spring is expected to generate 35.23 times less return on investment than Sound Financial. But when comparing it to its historical volatility, Sandy Spring Bancorp is 29.13 times less risky than Sound Financial. It trades about 0.05 of its potential returns per unit of risk. Sound Financial Bancorp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,856  in Sound Financial Bancorp on September 20, 2024 and sell it today you would earn a total of  1,355  from holding Sound Financial Bancorp or generate 35.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	87.1%
Values	Daily Returns

Sandy Spring Bancorp  vs.  Sound Financial Bancorp

Sandy Spring Bancorp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sandy Spring Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Sandy Spring is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail 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 Sandy Spring and Sound Financial

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

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