Correlation Between Community West and Independent Bank

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

Diversification Opportunities for Community West and Independent Bank

0.86

Correlation Coefficient

Community West  Independent Bank

Very poor diversification

The 3 months correlation between Community and Independent is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Independent Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent 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 Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of Community West i.e., Community West and Independent Bank go up and down completely randomly.

Pair Corralation between Community West and Independent Bank

Given the investment horizon of 90 days Community West Bancshares is expected to generate 3.98 times more return on investment than Independent Bank. However, Community West is 3.98 times more volatile than Independent Bank Group. It trades about 0.05 of its potential returns per unit of risk. Independent Bank Group is currently generating about 0.02 per unit of risk. If you would invest  1,974  in Community West Bancshares on September 16, 2024 and sell it today you would earn a total of  176.00  from holding Community West Bancshares or generate 8.92% return on investment over 90 days.

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

Community West Bancshares  vs.  Independent Bank Group

Community West Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Community West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Independent Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Independent Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Community West and Independent Bank

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

The idea behind Community West Bancshares and Independent Bank Group 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.