Correlation Between Southern Missouri and Waterstone Financial

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

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

Diversification Opportunities for Southern Missouri and Waterstone Financial

0.92

Correlation Coefficient

Southern Missouri  Waterstone Financial

Almost no diversification

The 3 months correlation between Southern and Waterstone is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Southern Missouri Bancorp and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial and Southern Missouri 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 Southern Missouri Bancorp are associated (or correlated) with Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Southern Missouri i.e., Southern Missouri and Waterstone Financial go up and down completely randomly.

Pair Corralation between Southern Missouri and Waterstone Financial

Given the investment horizon of 90 days Southern Missouri Bancorp is expected to under-perform the Waterstone Financial. But the stock apears to be less risky and, when comparing its historical volatility, Southern Missouri Bancorp is 1.17 times less risky than Waterstone Financial. The stock trades about -0.12 of its potential returns per unit of risk. The Waterstone Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,491  in Waterstone Financial on November 29, 2024 and sell it today you would lose (70.00) from holding Waterstone Financial or give up 4.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Southern Missouri Bancorp  vs.  Waterstone Financial

Southern Missouri Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Missouri Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Waterstone Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southern Missouri and Waterstone Financial

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

The idea behind Southern Missouri Bancorp and Waterstone Financial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.