Correlation Between Waterstone Financial and Southern Missouri

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

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

Diversification Opportunities for Waterstone Financial and Southern Missouri

0.9

Correlation Coefficient

Waterstone Financial  Southern Missouri

Almost no diversification

The 3 months correlation between Waterstone and Southern is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Waterstone Financial and Southern Missouri Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Missouri Bancorp 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 Southern Missouri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Missouri Bancorp has no effect on the direction of Waterstone Financial i.e., Waterstone Financial and Southern Missouri go up and down completely randomly.

Pair Corralation between Waterstone Financial and Southern Missouri

Given the investment horizon of 90 days Waterstone Financial is expected to generate 1.16 times more return on investment than Southern Missouri. However, Waterstone Financial is 1.16 times more volatile than Southern Missouri Bancorp. It trades about -0.03 of its potential returns per unit of risk. Southern Missouri Bancorp is currently generating about -0.11 per unit of risk. If you would invest  1,473  in Waterstone Financial on December 1, 2024 and sell it today you would lose (66.00) from holding Waterstone Financial or give up 4.48% of portfolio value over 90 days.

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

Waterstone Financial  vs.  Southern Missouri Bancorp

Waterstone Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waterstone Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Southern Missouri Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Missouri Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Waterstone Financial and Southern Missouri

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

The idea behind Waterstone Financial and Southern Missouri Bancorp 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.