Correlation Between Community Trust and CVB Financial

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

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

Diversification Opportunities for Community Trust and CVB Financial

0.43

Correlation Coefficient

Community Trust  CVB Financial

Very weak diversification

The 3 months correlation between Community and CVB is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Community Trust Bancorp and CVB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVB Financial and Community Trust 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 Trust Bancorp are associated (or correlated) with CVB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVB Financial has no effect on the direction of Community Trust i.e., Community Trust and CVB Financial go up and down completely randomly.

Pair Corralation between Community Trust and CVB Financial

Given the investment horizon of 90 days Community Trust Bancorp is expected to generate 1.0 times more return on investment than CVB Financial. However, Community Trust is 1.0 times more volatile than CVB Financial. It trades about -0.03 of its potential returns per unit of risk. CVB Financial is currently generating about -0.13 per unit of risk. If you would invest  5,273  in Community Trust Bancorp on December 29, 2024 and sell it today you would lose (184.00) from holding Community Trust Bancorp or give up 3.49% of portfolio value over 90 days.

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

Community Trust Bancorp  vs.  CVB Financial

Community Trust Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Trust Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Community Trust is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

CVB Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVB Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Community Trust and CVB Financial

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

The idea behind Community Trust Bancorp and CVB Financial 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.