Correlation Between Southern Michigan and FS Bancorp

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

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

Diversification Opportunities for Southern Michigan and FS Bancorp

-0.06

Correlation Coefficient

Southern Michigan  FS Bancorp

Good diversification

The 3 months correlation between Southern and FXLG is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Southern Michigan Bancorp and FS Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FS Bancorp and Southern Michigan 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 Michigan Bancorp are associated (or correlated) with FS Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FS Bancorp has no effect on the direction of Southern Michigan i.e., Southern Michigan and FS Bancorp go up and down completely randomly.

Pair Corralation between Southern Michigan and FS Bancorp

Given the investment horizon of 90 days Southern Michigan Bancorp is expected to under-perform the FS Bancorp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Southern Michigan Bancorp is 1.25 times less risky than FS Bancorp. The pink sheet trades about -0.02 of its potential returns per unit of risk. The FS Bancorp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  3,159  in FS Bancorp on December 27, 2024 and sell it today you would earn a total of  266.00  from holding FS Bancorp or generate 8.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Southern Michigan Bancorp  vs.  FS Bancorp

Southern Michigan Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Michigan Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Southern Michigan is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

FS Bancorp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FS Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, FS Bancorp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Southern Michigan and FS Bancorp

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

The idea behind Southern Michigan Bancorp and FS 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.