Correlation Between Bankwell Financial and Cambridge Bancorp
Can any of the company-specific risk be diversified away by investing in both Bankwell Financial and Cambridge Bancorp 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 Bankwell Financial and Cambridge Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bankwell Financial Group and Cambridge Bancorp, you can compare the effects of market volatilities on Bankwell Financial and Cambridge Bancorp 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 Bankwell Financial with a short position of Cambridge Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bankwell Financial and Cambridge Bancorp.
Diversification Opportunities for Bankwell Financial and Cambridge Bancorp
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bankwell and Cambridge is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and Cambridge Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambridge Bancorp and Bankwell 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 Bankwell Financial Group are associated (or correlated) with Cambridge Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambridge Bancorp has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and Cambridge Bancorp go up and down completely randomly.
Pair Corralation between Bankwell Financial and Cambridge Bancorp
Given the investment horizon of 90 days Bankwell Financial Group is expected to under-perform the Cambridge Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Bankwell Financial Group is 1.12 times less risky than Cambridge Bancorp. The stock trades about -0.12 of its potential returns per unit of risk. The Cambridge Bancorp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,507 in Cambridge Bancorp on February 8, 2024 and sell it today you would earn a total of 116.00 from holding Cambridge Bancorp or generate 1.78% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Bankwell Financial Group vs. Cambridge Bancorp
Performance |
Timeline |
Bankwell Financial |
Cambridge Bancorp |
Bankwell Financial and Cambridge Bancorp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Bankwell Financial and Cambridge Bancorp
The main advantage of trading using opposite Bankwell Financial and Cambridge Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bankwell Financial position performs unexpectedly, Cambridge Bancorp 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 Cambridge Bancorp will offset losses from the drop in Cambridge Bancorp's long position.The idea behind Bankwell Financial Group and Cambridge 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.Check out your portfolio center.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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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