Correlation Between Washington Federal and Bridgewater Bancshares

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

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

Diversification Opportunities for Washington Federal and Bridgewater Bancshares

0.81

Correlation Coefficient

Washington Federal  Bridgewater Bancshares

Very poor diversification

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

Pair Corralation between Washington Federal and Bridgewater Bancshares

Given the investment horizon of 90 days Washington Federal is expected to under-perform the Bridgewater Bancshares. In addition to that, Washington Federal is 1.07 times more volatile than Bridgewater Bancshares. It trades about -0.32 of its total potential returns per unit of risk. Bridgewater Bancshares is currently generating about -0.29 per unit of volatility. If you would invest  1,494  in Bridgewater Bancshares on October 3, 2024 and sell it today you would lose (143.00) from holding Bridgewater Bancshares or give up 9.57% of portfolio value over 90 days.

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

Washington Federal  vs.  Bridgewater Bancshares

Washington Federal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bridgewater Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bridgewater Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bridgewater Bancshares is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Washington Federal and Bridgewater Bancshares

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

The idea behind Washington Federal and Bridgewater Bancshares 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.