Correlation Between Eagle Financial and Community West

Can any of the company-specific risk be diversified away by investing in both Eagle Financial and Community West 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 Eagle Financial and Community West into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eagle Financial Services and Community West Bancshares, you can compare the effects of market volatilities on Eagle Financial and Community West 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 Eagle Financial with a short position of Community West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Financial and Community West.

Diversification Opportunities for Eagle Financial and Community West

0.89

Correlation Coefficient

Eagle Financial  Community West

Very poor diversification

The 3 months correlation between Eagle and Community is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Financial Services and Community West Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community West Bancshares and Eagle Financial 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 Eagle Financial Services are associated (or correlated) with Community West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community West Bancshares has no effect on the direction of Eagle Financial i.e., Eagle Financial and Community West go up and down completely randomly.

Pair Corralation between Eagle Financial and Community West

Given the investment horizon of 90 days Eagle Financial is expected to generate 1.18 times less return on investment than Community West. But when comparing it to its historical volatility, Eagle Financial Services is 1.55 times less risky than Community West. It trades about 0.14 of its potential returns per unit of risk. Community West Bancshares is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,004  in Community West Bancshares on September 4, 2024 and sell it today you would earn a total of  204.00  from holding Community West Bancshares or generate 10.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.88%
Values	Daily Returns

Eagle Financial Services  vs.  Community West Bancshares

Eagle Financial Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Financial Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Eagle Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Community West Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community West Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Community West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eagle Financial and Community West

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

The idea behind Eagle Financial Services and Community West Bancshares 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.