Correlation Between Community West and Lakeland Financial

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

Diversification Opportunities for Community West and Lakeland Financial

0.94

Correlation Coefficient

Community West  Lakeland Financial

Almost no diversification

The 3 months correlation between Community and Lakeland is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Lakeland Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakeland 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 Lakeland Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakeland Financial has no effect on the direction of Community West i.e., Community West and Lakeland Financial go up and down completely randomly.

Pair Corralation between Community West and Lakeland Financial

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Lakeland Financial. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.13 times less risky than Lakeland Financial. The stock trades about -0.18 of its potential returns per unit of risk. The Lakeland Financial is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  7,443  in Lakeland Financial on December 4, 2024 and sell it today you would lose (1,041) from holding Lakeland Financial or give up 13.99% of portfolio value over 90 days.

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

Community West Bancshares  vs.  Lakeland 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 conflicting performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Lakeland Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lakeland Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Community West and Lakeland Financial

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

The idea behind Community West Bancshares and Lakeland 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.