Correlation Between Community West and Lake Shore

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

By analyzing existing cross correlation between Community West Bancshares and Lake Shore Bancorp, you can compare the effects of market volatilities on Community West and Lake Shore 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 Community West with a short position of Lake Shore. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and Lake Shore.

Diversification Opportunities for Community West and Lake Shore

0.79

Correlation Coefficient

Community West  Lake Shore

Poor diversification

The 3 months correlation between Community and Lake is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Lake Shore Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Shore Bancorp and Community West 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 Community West Bancshares are associated (or correlated) with Lake Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Shore Bancorp has no effect on the direction of Community West i.e., Community West and Lake Shore go up and down completely randomly.

Pair Corralation between Community West and Lake Shore

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Lake Shore. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.01 times less risky than Lake Shore. The stock trades about -0.03 of its potential returns per unit of risk. The Lake Shore Bancorp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,580  in Lake Shore Bancorp on February 24, 2025 and sell it today you would lose (40.00) from holding Lake Shore Bancorp or give up 2.53% of portfolio value over 90 days.

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

Community West Bancshares  vs.  Lake Shore Bancorp

Community West Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Lake Shore Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lake Shore Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Lake Shore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Community West and Lake Shore

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

The idea behind Community West Bancshares and Lake Shore 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.