Correlation Between Community West and Capitol Federal

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

Diversification Opportunities for Community West and Capitol Federal

0.62

Correlation Coefficient

Community West  Capitol Federal

Poor diversification

The 3 months correlation between Community and Capitol is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Capitol Federal Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitol Federal Financial 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 Capitol Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitol Federal Financial has no effect on the direction of Community West i.e., Community West and Capitol Federal go up and down completely randomly.

Pair Corralation between Community West and Capitol Federal

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Capitol Federal. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.02 times less risky than Capitol Federal. The stock trades about -0.05 of its potential returns per unit of risk. The Capitol Federal Financial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  584.00  in Capitol Federal Financial on December 30, 2024 and sell it today you would lose (15.00) from holding Capitol Federal Financial or give up 2.57% 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.  Capitol Federal Financial

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.

Capitol Federal Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capitol Federal Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Capitol Federal is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Community West and Capitol Federal

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

The idea behind Community West Bancshares and Capitol Federal 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.

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.