Correlation Between Capital Bancorp and Community West

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

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

Diversification Opportunities for Capital Bancorp and Community West

0.89

Correlation Coefficient

Capital Bancorp  Community West

Very poor diversification

The 3 months correlation between Capital and Community is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Capital Bancorp and Community West Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community West Bancshares and Capital Bancorp 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 Capital Bancorp are associated (or correlated) with Community West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community West Bancshares has no effect on the direction of Capital Bancorp i.e., Capital Bancorp and Community West go up and down completely randomly.

Pair Corralation between Capital Bancorp and Community West

Given the investment horizon of 90 days Capital Bancorp is expected to generate 1.73 times more return on investment than Community West. However, Capital Bancorp is 1.73 times more volatile than Community West Bancshares. It trades about 0.05 of its potential returns per unit of risk. Community West Bancshares is currently generating about -0.58 per unit of risk. If you would invest  2,858  in Capital Bancorp on September 25, 2024 and sell it today you would earn a total of  44.00  from holding Capital Bancorp or generate 1.54% return on investment over 90 days.

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

Capital Bancorp  vs.  Community West Bancshares

Capital Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Capital Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Community West Bancshares

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Capital Bancorp and Community West

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

The idea behind Capital Bancorp and Community West Bancshares 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.