Correlation Between Third Coast and Five Star

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

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

Diversification Opportunities for Third Coast and Five Star

0.91

Correlation Coefficient

Third Coast  Five Star

Almost no diversification

The 3 months correlation between Third and Five is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Third Coast Bancshares and Five Star Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Five Star Bancorp and Third Coast 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 Third Coast Bancshares are associated (or correlated) with Five Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Five Star Bancorp has no effect on the direction of Third Coast i.e., Third Coast and Five Star go up and down completely randomly.

Pair Corralation between Third Coast and Five Star

Given the investment horizon of 90 days Third Coast Bancshares is expected to generate 0.89 times more return on investment than Five Star. However, Third Coast Bancshares is 1.12 times less risky than Five Star. It trades about 0.3 of its potential returns per unit of risk. Five Star Bancorp is currently generating about 0.11 per unit of risk. If you would invest  2,525  in Third Coast Bancshares on September 12, 2024 and sell it today you would earn a total of  1,203  from holding Third Coast Bancshares or generate 47.64% return on investment over 90 days.

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

Third Coast Bancshares  vs.  Five Star Bancorp

Third Coast Bancshares

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Third Coast Bancshares are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Third Coast showed solid returns over the last few months and may actually be approaching a breakup point.

Five Star Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Five Star Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, Five Star exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Third Coast and Five Star

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

The idea behind Third Coast Bancshares and Five Star 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.