Correlation Between Washington Federal and Third Coast

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

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

Diversification Opportunities for Washington Federal and Third Coast

-0.05

Correlation Coefficient

Washington Federal  Third Coast

Good diversification

The 3 months correlation between Washington and Third is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Washington Federal and Third Coast Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Third Coast 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 Third Coast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Third Coast Bancshares has no effect on the direction of Washington Federal i.e., Washington Federal and Third Coast go up and down completely randomly.

Pair Corralation between Washington Federal and Third Coast

Assuming the 90 days horizon Washington Federal is expected to under-perform the Third Coast. But the preferred stock apears to be less risky and, when comparing its historical volatility, Washington Federal is 1.98 times less risky than Third Coast. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Third Coast Bancshares is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,413  in Third Coast Bancshares on December 27, 2024 and sell it today you would earn a total of  22.00  from holding Third Coast Bancshares or generate 0.64% return on investment over 90 days.

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

Washington Federal  vs.  Third Coast Bancshares

Washington Federal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Washington Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Washington Federal is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Third Coast Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Third Coast Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Third Coast is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Washington Federal and Third Coast

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

The idea behind Washington Federal and Third Coast 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.