Correlation Between Washington Trust and MidWestOne Financial

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

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

Diversification Opportunities for Washington Trust and MidWestOne Financial

0.78

Correlation Coefficient

Washington Trust  MidWestOne Financial

Poor diversification

The 3 months correlation between Washington and MidWestOne is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Washington Trust Bancorp and MidWestOne Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidWestOne Financial and Washington Trust 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 Trust Bancorp are associated (or correlated) with MidWestOne Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidWestOne Financial has no effect on the direction of Washington Trust i.e., Washington Trust and MidWestOne Financial go up and down completely randomly.

Pair Corralation between Washington Trust and MidWestOne Financial

Given the investment horizon of 90 days Washington Trust Bancorp is expected to under-perform the MidWestOne Financial. In addition to that, Washington Trust is 1.52 times more volatile than MidWestOne Financial Group. It trades about -0.28 of its total potential returns per unit of risk. MidWestOne Financial Group is currently generating about -0.37 per unit of volatility. If you would invest  3,247  in MidWestOne Financial Group on October 10, 2024 and sell it today you would lose (397.00) from holding MidWestOne Financial Group or give up 12.23% of portfolio value over 90 days.

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

Washington Trust Bancorp  vs.  MidWestOne Financial Group

Washington Trust Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Washington Trust Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Washington Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

MidWestOne Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MidWestOne Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, MidWestOne Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Washington Trust and MidWestOne Financial

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

The idea behind Washington Trust Bancorp and MidWestOne Financial Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.