Correlation Between Community West and Meridian Bank

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

Diversification Opportunities for Community West and Meridian Bank

0.52

Correlation Coefficient

Community West  Meridian Bank

Very weak diversification

The 3 months correlation between Community and Meridian is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Meridian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian 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 Meridian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Bank has no effect on the direction of Community West i.e., Community West and Meridian Bank go up and down completely randomly.

Pair Corralation between Community West and Meridian Bank

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Meridian Bank. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.29 times less risky than Meridian Bank. The stock trades about -0.05 of its potential returns per unit of risk. The Meridian Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,326  in Meridian Bank on December 30, 2024 and sell it today you would earn a total of  109.00  from holding Meridian Bank or generate 8.22% return on investment over 90 days.

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

Community West Bancshares  vs.  Meridian 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.

Meridian Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, Meridian Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Community West and Meridian Bank

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

The idea behind Community West Bancshares and Meridian 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.