Correlation Between Waterstone Financial and Loandepot

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

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

Diversification Opportunities for Waterstone Financial and Loandepot

0.33

Correlation Coefficient

Waterstone Financial  Loandepot

Weak diversification

The 3 months correlation between Waterstone and Loandepot is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Waterstone Financial and Loandepot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loandepot 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 Loandepot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loandepot has no effect on the direction of Waterstone Financial i.e., Waterstone Financial and Loandepot go up and down completely randomly.

Pair Corralation between Waterstone Financial and Loandepot

Given the investment horizon of 90 days Waterstone Financial is expected to under-perform the Loandepot. But the stock apears to be less risky and, when comparing its historical volatility, Waterstone Financial is 2.41 times less risky than Loandepot. The stock trades about -0.01 of its potential returns per unit of risk. The Loandepot is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  195.00  in Loandepot on September 26, 2024 and sell it today you would lose (6.00) from holding Loandepot or give up 3.08% of portfolio value over 90 days.

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

Waterstone Financial  vs.  Loandepot

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 inconsistent 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.

Loandepot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loandepot has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Waterstone Financial and Loandepot

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

The idea behind Waterstone Financial and Loandepot 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.