Correlation Between Community West and Waterstone Financial
Can any of the company-specific risk be diversified away by investing in both Community West and Waterstone 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 Waterstone 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 Waterstone Financial, you can compare the effects of market volatilities on Community West and Waterstone 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 Waterstone Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and Waterstone Financial.
Diversification Opportunities for Community West and Waterstone Financial
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Community and Waterstone is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone 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 Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Community West i.e., Community West and Waterstone Financial go up and down completely randomly.
Pair Corralation between Community West and Waterstone Financial
Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Waterstone Financial. But the stock apears to be less risky and, when comparing its historical volatility, Community West Bancshares is 1.47 times less risky than Waterstone Financial. The stock trades about -0.16 of its potential returns per unit of risk. The Waterstone Financial is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 1,473 in Waterstone Financial on December 1, 2024 and sell it today you would lose (66.00) from holding Waterstone Financial or give up 4.48% 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. Waterstone Financial
Performance |
Timeline |
Community West Bancshares |
Waterstone Financial |
Community West and Waterstone Financial Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Community West and Waterstone Financial
The main advantage of trading using opposite Community West and Waterstone Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community West position performs unexpectedly, Waterstone 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 Waterstone Financial will offset losses from the drop in Waterstone Financial's long position.Community West vs. Home Federal Bancorp | Community West vs. Magyar Bancorp | Community West vs. First Northwest Bancorp | Community West vs. First Financial Northwest |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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