Correlation Between Sound Financial and Northeast Community

Can any of the company-specific risk be diversified away by investing in both Sound Financial and Northeast Community 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 Northeast Community 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 Northeast Community Bancorp, you can compare the effects of market volatilities on Sound Financial and Northeast Community 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 Northeast Community. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sound Financial and Northeast Community.

Diversification Opportunities for Sound Financial and Northeast Community

-0.14

Correlation Coefficient

Sound Financial  Northeast Community

Good diversification

The 3 months correlation between Sound and Northeast is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Sound Financial Bancorp and Northeast Community Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Community 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 Northeast Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Community has no effect on the direction of Sound Financial i.e., Sound Financial and Northeast Community go up and down completely randomly.

Pair Corralation between Sound Financial and Northeast Community

Given the investment horizon of 90 days Sound Financial is expected to generate 62.78 times less return on investment than Northeast Community. But when comparing it to its historical volatility, Sound Financial Bancorp is 1.59 times less risky than Northeast Community. It trades about 0.01 of its potential returns per unit of risk. Northeast Community Bancorp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,195  in Northeast Community Bancorp on September 4, 2024 and sell it today you would earn a total of  717.00  from holding Northeast Community Bancorp or generate 32.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Sound Financial Bancorp  vs.  Northeast Community Bancorp

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.

Northeast Community

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Community Bancorp are ranked lower than 15 (%) 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.

Pair Trading with Sound Financial and Northeast Community

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

The idea behind Sound Financial Bancorp and Northeast Community 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.