Correlation Between Community West and China Everbright

Can any of the company-specific risk be diversified away by investing in both Community West and China Everbright 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 China Everbright 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 China Everbright Bank, you can compare the effects of market volatilities on Community West and China Everbright 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 China Everbright. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and China Everbright.

Diversification Opportunities for Community West and China Everbright

-0.29

Correlation Coefficient

Community West  China Everbright

Very good diversification

The 3 months correlation between Community and China is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and China Everbright Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Everbright Bank 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 China Everbright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Everbright Bank has no effect on the direction of Community West i.e., Community West and China Everbright go up and down completely randomly.

Pair Corralation between Community West and China Everbright

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the China Everbright. In addition to that, Community West is 1.93 times more volatile than China Everbright Bank. It trades about -0.05 of its total potential returns per unit of risk. China Everbright Bank is currently generating about 0.13 per unit of volatility. If you would invest  37.00  in China Everbright Bank on December 30, 2024 and sell it today you would earn a total of  2.00  from holding China Everbright Bank or generate 5.41% return on investment over 90 days.

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

Community West Bancshares  vs.  China Everbright Bank

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.

China Everbright Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Everbright Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, China Everbright is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Community West and China Everbright

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

The idea behind Community West Bancshares and China Everbright Bank 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.

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.