Correlation Between Sound Financial and Franklin Financial

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

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

Diversification Opportunities for Sound Financial and Franklin Financial

-0.81

Correlation Coefficient

Sound Financial  Franklin Financial

Pay attention - limited upside

The 3 months correlation between Sound and Franklin is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Sound Financial Bancorp and Franklin Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Financial and Sound Financial 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 Sound Financial Bancorp are associated (or correlated) with Franklin Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Financial has no effect on the direction of Sound Financial i.e., Sound Financial and Franklin Financial go up and down completely randomly.

Pair Corralation between Sound Financial and Franklin Financial

Given the investment horizon of 90 days Sound Financial Bancorp is expected to under-perform the Franklin Financial. But the stock apears to be less risky and, when comparing its historical volatility, Sound Financial Bancorp is 1.1 times less risky than Franklin Financial. The stock trades about 0.0 of its potential returns per unit of risk. The Franklin Financial Services is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,974  in Franklin Financial Services on December 29, 2024 and sell it today you would earn a total of  573.00  from holding Franklin Financial Services or generate 19.27% return on investment over 90 days.

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

Sound Financial Bancorp  vs.  Franklin Financial Services

Sound Financial Bancorp

Risk-Adjusted Performance

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.

Franklin Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sound Financial and Franklin Financial

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

The idea behind Sound Financial Bancorp and Franklin Financial Services 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.