Correlation Between Waterstone Financial and Colony Bankcorp

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

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

Diversification Opportunities for Waterstone Financial and Colony Bankcorp

0.47

Correlation Coefficient

Waterstone Financial  Colony Bankcorp

Very weak diversification

The 3 months correlation between Waterstone and Colony is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Waterstone Financial and Colony Bankcorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colony Bankcorp and Waterstone Financial 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 Waterstone Financial are associated (or correlated) with Colony Bankcorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colony Bankcorp has no effect on the direction of Waterstone Financial i.e., Waterstone Financial and Colony Bankcorp go up and down completely randomly.

Pair Corralation between Waterstone Financial and Colony Bankcorp

Given the investment horizon of 90 days Waterstone Financial is expected to generate 3.5 times less return on investment than Colony Bankcorp. In addition to that, Waterstone Financial is 1.08 times more volatile than Colony Bankcorp. It trades about 0.01 of its total potential returns per unit of risk. Colony Bankcorp is currently generating about 0.06 per unit of volatility. If you would invest  1,285  in Colony Bankcorp on September 20, 2024 and sell it today you would earn a total of  329.00  from holding Colony Bankcorp or generate 25.6% return on investment over 90 days.

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

Waterstone Financial  vs.  Colony Bankcorp

Waterstone Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Colony Bankcorp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Colony Bankcorp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Colony Bankcorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waterstone Financial and Colony Bankcorp

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

The idea behind Waterstone Financial and Colony Bankcorp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.