Correlation Between City Holding and Community West

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

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

Diversification Opportunities for City Holding and Community West

0.75

Correlation Coefficient

City Holding  Community West

Poor diversification

The 3 months correlation between City and Community is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding City Holding 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 City Holding 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 City Holding 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 City Holding i.e., City Holding and Community West go up and down completely randomly.

Pair Corralation between City Holding and Community West

Given the investment horizon of 90 days City Holding is expected to generate 1.39 times more return on investment than Community West. However, City Holding is 1.39 times more volatile than Community West Bancshares. It trades about 0.09 of its potential returns per unit of risk. Community West Bancshares is currently generating about 0.1 per unit of risk. If you would invest  11,766  in City Holding on September 4, 2024 and sell it today you would earn a total of  1,412  from holding City Holding or generate 12.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

City Holding  vs.  Community West Bancshares

City Holding

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Holding are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, City Holding displayed solid returns over the last few months and may actually be approaching a breakup point.

Community West Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Community West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with City Holding and Community West

The main advantage of trading using opposite City Holding and Community West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Holding 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 City Holding 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.