Correlation Between Bankwell Financial and First Bancorp
Can any of the company-specific risk be diversified away by investing in both Bankwell Financial and First 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 First 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 First Bancorp, you can compare the effects of market volatilities on Bankwell Financial and First 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 First Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bankwell Financial and First Bancorp.
Diversification Opportunities for Bankwell Financial and First Bancorp
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Bankwell and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Bankwell Financial Group and First Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First 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 First Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancorp has no effect on the direction of Bankwell Financial i.e., Bankwell Financial and First Bancorp go up and down completely randomly.
Pair Corralation between Bankwell Financial and First Bancorp
Given the investment horizon of 90 days Bankwell Financial is expected to generate 1.17 times less return on investment than First Bancorp. But when comparing it to its historical volatility, Bankwell Financial Group is 1.0 times less risky than First Bancorp. It trades about 0.05 of its potential returns per unit of risk. First Bancorp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3,338 in First Bancorp on November 2, 2024 and sell it today you would earn a total of 1,075 from holding First Bancorp or generate 32.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bankwell Financial Group vs. First Bancorp
Performance |
| Timeline |
| Bankwell Financial |
| First Bancorp |
Bankwell Financial and First Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bankwell Financial and First Bancorp
The main advantage of trading using opposite Bankwell Financial and First Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bankwell Financial position performs unexpectedly, First 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 First Bancorp will offset losses from the drop in First Bancorp's long position.| Bankwell Financial vs. Franklin Financial Services | Bankwell Financial vs. The First Bancshares, | Bankwell Financial vs. Home Federal Bancorp | Bankwell Financial vs. Lake Shore Bancorp |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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