Correlation Between Community West and Shinhan Financial

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

Diversification Opportunities for Community West and Shinhan Financial

0.48

Correlation Coefficient

Community West  Shinhan Financial

Very weak diversification

The 3 months correlation between Community and Shinhan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Shinhan Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shinhan 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 Shinhan Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shinhan Financial has no effect on the direction of Community West i.e., Community West and Shinhan Financial go up and down completely randomly.

Pair Corralation between Community West and Shinhan Financial

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Shinhan Financial. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.02 times less risky than Shinhan Financial. The stock trades about -0.05 of its potential returns per unit of risk. The Shinhan Financial Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,287  in Shinhan Financial Group on December 30, 2024 and sell it today you would lose (100.00) from holding Shinhan Financial Group or give up 3.04% of portfolio value over 90 days.

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

Community West Bancshares  vs.  Shinhan Financial Group

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.

Shinhan Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shinhan Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Shinhan Financial 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 Shinhan Financial

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

The idea behind Community West Bancshares and Shinhan Financial 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.

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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.